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Feed of posts on WordPress.com tagged "foreign-corrupt-practices-act"Fri, 09 Dec 2016 13:26:53 +0000http://en.wordpress.com/tags/enhttps://lawofficesmrn.wordpress.com/2016/12/08/foreign-corrupt-practices-act-fcpa/
Thu, 08 Dec 2016 07:56:48 +0000lawofficesmrnhttps://lawofficesmrn.wordpress.com/2016/12/08/foreign-corrupt-practices-act-fcpa/
]]>https://blog.protiviti.com/2016/12/06/the-intersection-of-bribery-kleptocracy-and-money-laundering/
Tue, 06 Dec 2016 16:10:49 +0000The Protiviti Viewhttps://blog.protiviti.com/2016/12/06/the-intersection-of-bribery-kleptocracy-and-money-laundering/https://globalanticorruptionblog.com/2016/12/06/what-can-young-lawyers-do-to-fight-corruption-now-that-trump-is-president/
Tue, 06 Dec 2016 15:00:43 +0000Matthew Stephensonhttps://globalanticorruptionblog.com/2016/12/06/what-can-young-lawyers-do-to-fight-corruption-now-that-trump-is-president/I promise that eventually I’ll go back to blogging about things other than Trump, but that seems to be the most important challenge facing the anticorruption community right now. Also, I wanted to contemplate a question that a friend and recent law school graduate (who is currently working for the US government, and so cannot be identified by name) put to me in response to the “cry of despair” I posted in the immediate aftermath of the election. This young lawyer asks:

What can people do in the face of all this? Is there anything young lawyers who care about anticorruption policy can do? If we can expect a drop in enforcement and weakening of the FCPA, where can people concentrate their efforts?

This is a great set of questions, and I wish I had good answers. I don’t, but in the interests of contributing to these important conversations, let me offer a few preliminary thoughts (which are probably worth approximately what you’ve paid for them):

First, a smaller but nonetheless important point: Despite my doom-and-gloom prognostications, it’s by no means a sure thing that the FCPA enforcement will be significantly weakened. It might be, and I confess I still fear it will be, but as I noted in my post a couple weeks back, a number of smart commentators have offered plausible reasons why this worrisome prediction might not come to pass. Even pessimists like me don’t think it will happen quickly. So if you are interested in continuing to work for the US government in FCPA enforcement, or in some similar area that presumes a robust FCPA, don’t abandon hope too quickly.

Second, part of what we all can do is to advocate for these issues, and to resist attempts to do things like curb FCPA enforcement, shutter or undermine the Kleptocracy Initiative, etc. It’s easy to say things like that in very broad terms, and much harder to determine what, exactly, we can do. I haven’t really figured that out. I guess at least part of it is doing what we can (whatever our day job) to follow these issues, talk to friends and colleagues, write about them when we have an outlet, be active in our professional associations (the ABA, for example) and so forth.

Third, and related to the above point, some have reasonably suggested that a Trump Administration (and/or a Republican Congress) might be open to at least some anticorruption initiatives, and that it might make sense to try to identify what those are and press in those areas. I confess that I’m a bit more pessimistic here than others are. I doubt, for example, that Trump’s “drain the swamp” rhetoric will translate into any meaningful push for campaign finance reform, and the Republican Congress would block such initiatives in any event. My personal view is that the anticorruption community is going to be mainly playing defense for the next four years. But that doesn’t mean it’s not worthwhile for smart, engaged people who care about these issues to try to identify political windows of opportunity.

A larger issue that many people—including but not limited to talented young lawyers like my friend—will need to face over the next four years is whether to work for the Trump Administration, if they have the opportunity to do so. This will be a dilemma for conservatives as much as for liberals—indeed, it’s likely to be a bigger issue for conservatives, who will have more opportunities for high-level jobs in the administration if they choose to pursue them (though there are still many parts of the government where people serve administrations of a different political party). It’s more of a dilemma than it usually is because the objections to a Trump Administration are not merely the usual left-right political/partisan fights over policy and general governing philosophy. Trump is abnormal—in his xenophobia, his misogyny, his ignorance, his contempt for basic norms of American democracy, and his demagoguery. We must resist the temptation to normalize him, or his Administration. The rhinoceros remains a rhinoceros, and we can’t let ourselves stop noticing. But that doesn’t necessarily mean that one shouldn’t be willing to work for the administration. Indeed, as I suggested in my last post, one of the most important potential moderating restraints is the bureaucracy—both the professional civil service and those political appointees who would resist the worst impulses of a President Trump and his chief lackeys. Everyone who takes an important government position in the next four years—as a prosecutor, for example, or as an agency lawyer—has the opportunity and the obligation to discharge that position with integrity, and in the service of the United States—and to find (lawful) ways to act as a buffer between the White House and the people whose lives are affected by US government policy. That said, it’s far too easy and comfortable to rationalize complicity with evil by telling oneself that one can effect more change from the inside, and that someone else in the job would likely be worse. So those who do take jobs in the US government will need to constantly ask themselves whether they are comfortable with what they are doing, and be willing to walk away if not.

One more thing I might say in answer to my friend’s question about where young lawyers (and others) who care about anticorruption can concentrate their efforts: Remember, even for Americans, the US federal government isn’t the only game in town. There are lots of other institutions and organizations where one can put one’s talents to work fighting corruption. Think about state and local governments (our only hope, over the next four years, for meaningful progress of any kind on many pressing issues). Think about international organizations like the World Bank, IMF, and UN, as well as advocacy groups and other NGOs, etc. Think about private sector firms, many of which genuinely look to their lawyers for advice on how to do well while doing good. Many of the professional opportunities for young US lawyers and other professionals who care about fighting corruption are still there, even if it turns out the US federal government is not as viable an option as it once was or would have been under a Clinton Administration.

Finally, and this probably goes without saying, stay angry, stay politically active, and get ready to mobilize for the 2018 mid-term elections (though the odds of much progress there are slim given the electoral map) and the 2020 presidential election.

I fear that none of this really provides a good answer to my friend’s question, but I hope that it helps move the conversation along, and I invite others with thoughts on this topic to contribute in the comments section.

]]>https://globalanticorruptionblog.com/2016/11/22/was-i-too-pessimistic-on-fcpa-enforcement-in-a-trump-administration-i-fear-not-but-hope-so/
Tue, 22 Nov 2016 15:00:40 +0000Matthew Stephensonhttps://globalanticorruptionblog.com/2016/11/22/was-i-too-pessimistic-on-fcpa-enforcement-in-a-trump-administration-i-fear-not-but-hope-so/A couple weeks back, I published a post (really, more of an extended wail) about the likely consequences of the Trump presidency for anticorruption efforts. Among my many worries was the concern that under a Trump administration, we may see the end (or at least the significant cutback) of the era of aggressive enforcement of the Foreign Corrupt Practices Act. Other analysts—notably Peter Henning and Tom Fox—are less pessimistic in their assessments, and have written interesting explanations as to why FCPA enforcement is unlikely to change much under President Trump. I hope they’re right. And I suspect they probably are, if only because commentators—including, perhaps especially, so-called “experts”—have a demonstrated tendency to over-predict dramatic change. Most of the time, the safest prediction is that the future will resemble the past. And more specifically here, the forces of inertia in the U.S. federal government are strong, and sudden changes are both rare and unlikely.

Still, I’m not sure I’m fully convinced by the reasons that Mr. Fox, Mr. Henning, and others have offered for their more sanguine conclusion that FCPA enforcement will not change much under a Trump Administration. So, with the understanding (and sincere hope) that I’m probably wrong, let me address some of the principal arguments that have been advanced for the “no change” prediction.

Before proceeding, it’s probably worth distinguishing two possible avenues for change in FCPA enforcement: (1) legislative revision of the statute, and (2) executive-driven changes in enforcement policy. These are related, but they’re sufficiently distinct that I’ll treat them separately, before turning to some general arguments that would apply to both.

Start with legislative change. Here the issue is not so much that President Trump will push for significant revisions to the FCPA, but rather that a unified Republican House and Senate are more likely to pass such revisions, and that a Trump Administration would accept them (perhaps enthusiastically, perhaps not, but in the case of legislation it doesn’t really matter). To be clear, I am not suggesting or predicting that Congress would go so far as to repeal the FCPA. I agree with Mr. Fox that nobody is calling for that, and the potential adverse political consequences of doing so would likely be sufficient to deter any such legislation from passing. My worry is not outright repeal, but rather so-called “FCPA reform” that is in fact designed to significantly weaken the statute. This does not seem like such an outlandish prediction: After all, the Chamber of Commerce has pushed hard for exactly this sort of “reform” in the past, most notably in its 2010 Restoring Balance report, which was part of a concerted—though ultimately unsuccessful—effort to weaken the statute.

Mr. Fox suggests that “those who have called for [the FCPA’s] lessening have been debunked as those who simply want to lessen the effectiveness of the world’s leading anti-corruption law.” I agree that many of the arguments for FCPA reform, including several of those in the Restoring Balance report, have been debunked, if by “debunked” we mean refuted with logic and evidence. But I disagree that those arguments could no longer get any political traction, or that it wouldn’t be possible to package a set of FCPA reforms as merely “technical” changes to curb “excessive” or “unpredictable” FCPA liability. Mr. Fox is perhaps more confident than I am that the legislative process will effectively reveal (in his words) the “true intention” of those seeking FCPA reform, and that even a Republican Congress would recognize that “US companies obtaining business through illegal actions is not in the interest of the US.” Alas, there are lots of things that are not, in my view, in the interests of the United States that I suspect the Republican Congress and President Trump would be all too happy to enact into law. And the considerations that Mr. Fox raises—along with the idea that the FCPA is in fact good for the US business community on net, at least in the long term—have not stopped the Chamber of Commerce, the defense bar, and a whole host of academic and other commentators from trumpeting a range of FCPA “reforms” that are clearly meant to make it harder for the US government to prosecute these cases.

That said, I do place some hope in two considerations, neither of which has much to do with Congress seeing the light and recognizing that weakening the FCPA would be bad for the country (and the world):

The first is the simple inertia of the US legislative process. That inertia, coupled with the fact that other issues (like taking away health insurance from vulnerable populations and slashing taxes on high earners) are likely to take priority, means that FCPA reform might fail to pass even if majorities in both chambers would vote for it.

Second, I take comfort in the fact that some of the items on the FCPA “reform” crowd’s wish-list—especially their Holy Grail of a “compliance defense”—are unlikely to have much of an effect. (That said, other proposed reforms, like substantially narrowing the definition of “foreign official” and limiting the scope of corporate criminal liability, might have much more of an adverse impact.)

My main concern, as I expressed it in the earlier post, is that since Donald Trump is on record as calling the FCPA a “horrible law,” and is more generally sympathetic to the interests of the U.S. business community (and not likely to be that interested in promoting the welfare of the victims of corruption in places like Africa and Asia), his administration would place substantially less emphasis on FCPA enforcement. Mr. Fox, Mr. Henning, and others pushed back against that prediction for a number of reasons, some of which are more convincing than others. A few thoughts here:

One argument that neither Mr. Fox nor Mr. Henning made, but that I’ve seen others float, is that a Trump Administration is unlikely to scale back FCPA enforcement because the FCPA is a “money maker” for the US government – the fines the government recovers exceed the costs of enforcing the statute. I don’t find that plausible for two reasons. First, as I’ve argued elsewhere, the notion that FCPA enforcement has ever been driven by these sorts of financial considerations has never been particularly plausible, given that the impact of FCPA enforcement on the overall US budget is negligible. Second, and related, the concern about declining enforcement has to do with the political interests of those with influence over a Trump DOJ and SEC, and if those political interests are strong enough, it’s hard to believe they’d be restrained by concern for the overall impact on the national budget (not least because Trump’s policy proposals during the campaign, such as they were, indicate very little concern for the nation’s fiscal health).

Mr. Fox and Mr. Henning make a different and more sophisticated argument related to funding, pointing out that—in contrast to other areas of white collar crime enforcement—FCPA enforcement is relatively inexpensive for the government, because the FCPA enforcement model relies so much on corporate self-reporting and internal investigations, rather than on large-scale government investigations. That’s certainly true, and it’s one of the reasons the DOJ and SEC have managed to be so effective despite relatively having few people focused on these cases. But it doesn’t provide much comfort, for two reasons. First, as noted above, the main concern about FCPA enforcement in a Trump Administration is not budget cuts, but rather politics and priorities. Second, I think perhaps Mr. Fox and Mr. Henning underestimate the degree to which the government’s current enforcement strategy, which relies so much on the company taking the lead, is effective only because of the implicit and credible threat of government-led action if the company doesn’t disclose and/or cooperate. That threat is the “club behind the door” that makes self-disclosure a more attractive option, and if that threat is removed, companies’ incentives to disclose and cooperate will decline as well.

Mr. Henning emphasizes that a lot of the enforcement policy at DOJ (and SEC) is driven by the career lawyers, not the top-level political appointees (and certainly not the President). And FCPA enforcement policy is not likely to be a Trump Administration’s highest priority. I think that’s basically right, and it does give me some cause for hope. Bureaucratic inertia—including the ability of career lawyers to do their own thing without a whole lot of responsiveness to their political overseers—is often seen as a problem, but in this case it may be a blessing. Hooray for bureaucratic inertia! Three cheers for unaccountable civil servants! (I realize that taking this position now may seem unprincipled, though in my defense I wrote an academic paper in 2008 making a more general version of this sort of argument.) As I said in my original post, it’s precisely for this reason that I don’t anticipate that FCPA enforcement will shut down right away. Rather, my concern is that these forces won’t be enough to prevent it from gradually tapering off, if the Attorney General and the heads of the Criminal Division and Fraud Section don’t see FCPA enforcement as a priority, and indeed see it mainly as a sanctimonious and moralistic imposition of extra burdens on US business.

Speaking of which, as Mr. Fox points out, lots of FCPA enforcement actions—including 7 of the 10 biggest to date—involve non-US corporations, and going after them would be in keeping both with Trump’s anticorruption rhetoric and his rhetoric on trade and foreign competition. So in that area, we might expect FCPA prosecutions to keep going strong. True enough. But that doesn’t make me feel that much better, because FCPA enforcement that is biased against foreign companies is both wrong and likely to undermine support for the statute (and US leadership on this issue) in the longer term. Moreover, selective FCPA enforcement against domestic firms–scrutinizing those viewed by the Trump Administration as political enemies aggressively, but looking the other way for firms controlled by Trump’s cronies and allies–would be worse than no FCPA enforcement at all. Yet that sort of politicized enforcement seems like a very real possibility.

Finally, with respect to both potential legislative reform and change to enforcement policy, Mr. Fox, Mr. Henning, and others make a broader point: that given Trump’s anticorruption campaign rhetoric, he won’t want to be seen as going “soft” on corruption. I hope this is true, but I have no particularly strong reason to believe it, and I fear that it’s more wishful thinking than anything else. Trump’s campaign rhetoric about “corruption” was not really about bribery (foreign or otherwise), but rather meant to tap into an inchoate sense that the US government is not working for “ordinary Americans” (by which he clearly meant middle- and working-class white Americans), because of a betrayal by self-serving “elites.” And the sorts of changes I worry about—legislative changes that can be packaged as FCPA “reform”, and gradual changes in enforcement policy that are unlikely to attract much media coverage—are unlikely to be noticed by many Trump supporters, even if they would care. Moreover, the idea that Donald Trump would somehow feel constrained by his campaign rhetoric doesn’t seem especially plausible, given his history of wild inconsistency. Indeed he’s already walked back at least some of his campaign promises, and ignored others.

I admit, it still feels a bit strange to spend a lot of time considering how the election of a narcissistic, racist, xenophobic, misogynistic would-be autocrat affects FCPA enforcement. If the airplane is on fire, is it really worth worrying about whether this will adversely affect the in-flight entertainment system? And maybe it’s pointless to speculate too much—as a couple of commenters on my earlier post noted, we don’t know what’s going to happen until it happens (a banal truism if there ever was one). But I guess for those of us who care about this issue, and want to figure out a way forward, it might be worthwhile to think about different scenarios, both to be prepared and to try to think through possible responses. This post is offered in that spirit.

]]>https://needlenose.org/2016/11/21/the-art-of-the-con/
Mon, 21 Nov 2016 22:46:07 +0000Greenboyhttps://needlenose.org/2016/11/21/the-art-of-the-con/I have a feeling that I will be returning to this post over the next 4 years. During his campaign, I couldn’t for the life of me divine why Trump was running for office. Why would a thin-skinned, vain billionaire subject himself to withering public scrutiny? It wasn’t a practical joke. He wasn’t in the pay of Hillary. Perhaps Putin had pictures of him having relations with a goat?

Turns out I just lack sufficient imagination. Criminal imagination, to be specific.

Trump is the American Berlusconi (with a soupçon of Mussolini). He is running a big con. His misAministration will be all about lining his pockets, and those of his friends, while goading the rest of us into an increasingly nastier internecine conflict.

It isn’t much of a stretch to imagine a guy who had no trouble treating his fake charity as a tax free interest-bearing checking account used to pay off legal fees as a guy who would have no troubles with using his new position to leverage overseas deals and enrich his businesses.

Conflicts with the Constitution and Foreign Corrupt Practices act? No sweat, who will be running the DOJ? And like Berlusconi, if the heat gets turned up, Republican Congress has his back and will pass a special law shielding him from prosecution…or worst case, his new SCOTUS appointment has him covered!

Remember, you heard it first here.

]]>https://qz.com/840705/jpmorgans-jpm-systemic-bribery-in-china-was-so-blatant-the-bank-had-an-internal-spreadsheet-to-track-it-the-sec-says/
Fri, 18 Nov 2016 04:46:46 +0000Heather Timmonshttps://qz.com/840705/jpmorgans-jpm-systemic-bribery-in-china-was-so-blatant-the-bank-had-an-internal-spreadsheet-to-track-it-the-sec-says/JPMorgan Chase will pay more than $130 million to settle charges that it corruptly influenced government officials in China by hiring on their relatives to win business, the US Securities and Exchange Commission announced on Nov. 17.

A three-year investigation found that not only had JPMorgan engaged in a “systemic bribery scheme,” by hiring children of government officials who were typically unqualified for the job, but they knew they were violating the law, the SEC says.

The bank also kept meticulous track of the business the bribery scheme brought in over seven years. As Kara Brockmeyer, head of the SEC’s Foreign Corrupt Practices Act enforcement division explained:

The misconduct was so blatant that JPMorgan investment bankers created ‘Referral Hires vs Revenue’ spreadsheets to track the money flow from clients whose referrals were rewarded with jobs. The firm’s internal controls were so weak that not a single referral hire request was denied.

The bank’s “Sons and Daughters” program started after it hired Fang Fang, a Chinese banker with powerful ties to the Communist Party, who quickly became the co-head of investment banking in China. Overall, it hired about 100 interns and full-time employees at the request of government officials, the SEC said, and earned over $100 million in revenues from the business they brought in.

The bank’s revenues from the program have been vastly overshadowed by the fines it will pay because of it. Including the latest fine, JPMorgan will have paid out more than $264 million in sanctions related to the program. Overall, JPMorgan has spent $27 billion over the past five years related to lawsuits and settlements for charges ranging from market manipulation to mortgage mis-selling.

]]>https://blog.protiviti.com/2016/11/14/the-princeling-problem-is-your-company-avoiding-corrupt-hiring-practices/
Mon, 14 Nov 2016 17:27:20 +0000The Protiviti Viewhttps://blog.protiviti.com/2016/11/14/the-princeling-problem-is-your-company-avoiding-corrupt-hiring-practices/https://globalanticorruptionblog.com/2016/11/10/us-anticorruption-policy-in-a-trump-administration-a-cry-of-despair-from-the-heart-of-darkness/
Thu, 10 Nov 2016 15:00:04 +0000Matthew Stephensonhttps://globalanticorruptionblog.com/2016/11/10/us-anticorruption-policy-in-a-trump-administration-a-cry-of-despair-from-the-heart-of-darkness/Like many people, both here in the US and across the world, I was shocked and dismayed by the outcome of the US Presidential election. To be honest, I’m still in such a state of numb disbelief, I’m not sure I’m in a position to think or write clearly. And I’m not even sure there’s much point to blogging about corruption. As I said in my post this past Tuesday (which now feels like a million years ago), the consequences of a Trump presidency are potentially so dire for such a broad range of issues–from health care to climate change to national security to immigration to the preservation of the fundamental ideals of the United States as an open and tolerant constitutional democracy–that even thinking about the implications of a Trump presidency for something as narrow and specific as anticorruption policy seems almost comically trivial. But blogging about corruption is one of the things I do, and to hold myself together and try to keep sane, I’m going to take a stab at writing a bit about the possible impact that President Trump will have on US anticorruption policy, at home and abroad. I think the impact is likely to be considerable, and uniformly bad:

First, the Foreign Corrupt Practices Act (FCPA) is likely to be substantially weakened, perhaps even repealed (though I think the latter possibility is still relatively unlikely). The FCPA “reform” crowd–the Chamber of Commerce, the defense bar, and their various supporters–will now have a Congress that is likely to support “reforms” that substantially weaken the statute, and a President who is already on record as calling the FCPA a “horrible law.” It may not be a top priority of the Republican Congress and the Trump Administration, but I expect that the Chamber and others will seize this legislative opportunity to push through many of the reforms that have been on their wish list for quite some time.

Second, even putting aside possible changes to the FCPA itself, I fully expect that the era of vigorous FCPA enforcement, which ran from about 2000 (give or take a couple years) up to the present, is over. It’s hard for me to imagine that the Attorney General of a Trump Administration (Rudy Giuliani, perhaps?) would make prosecuting foreign bribery a significant priority, or would devote substantial resources to this area. It might take a little while for the change to become apparent–there are still some cases in the pipeline, after all–but I’d be shocked if the US maintained anything like its current level of FCPA enforcement.

Now, one might point out that substantially weakening the FCPA and/or ratcheting back enforcement might be in tension with US obligations under the OECD antibribery convention. And so it would. But does anyone really think that a Trump Administration would care about this? After all, the only enforcement mechanism that OECD Convention has is public shaming (through bad peer review compliance reports), and I doubt that a Trump Administration would have much shame.

Insofar as the US continues to enforce the FCPA, I expect that enforcement will become much more politicized than it has been in the past, with more deliberate targeting of foreign companies (especially those that compete with firms close to Trump and his business associates) and more targeting of perceived political enemies. The complaint that FCPA enforcement is politicized, which I never took seriously before, is about to become much more plausible.

The DOJ’s Kleptocracy Initiative, which had been making so much exciting progress in its relatively short lifespan, is also likely to be on the chopping block. It seems to me highly unlikely that going after foreign kleptocrats–or indeed highlighting kleptocracy as a problem–is something that a Trump Administration will have much interest in. This is especially the case for kleptocrats with whom Trump, his family, his businesses, or his close associates do business. We don’t know for sure who these might be, but let’s just say I’m skeptical that the Kleptocracy Initiative, even if it survives, will spend much time looking into unlawfully obtained assets from associates of former Ukrainian President Viktor Yanukovych (a Putin ally) or Putin and his cronies.

Domestically, I think that there is a very serious risk that enforcement of US anticorruption laws will become much more heavily politicized. Keep in mind that President George W. Bush apparently fired several US attorneys for either pursuing corruption cases against Republicans, or not pursuing corruption cases against Democrats. And there’s more systematic evidence of some partisan bias in domestic anticorruption prosecutions more generally. But I expect this problem to increase by an order of magnitude under a President Trump, who has already indicated his desire to use the powers of the presidency to go after his political opponents. And I’m not even talking about anything so brazen as Trump’s pledge to appoint a special prosecutor to go after Hillary Clinton–I have in mind more systematic targeting of Democratic politicians and officials, as well as a systematic shielding of Trump allies.

I also expect that domestic anticorruption laws will be weakened overall, as Trump’s power to fill several Supreme Court vacancies will accelerate the trend, which we have already seen in the current court, of reading anticorruption statutes narrowly. (A silver lining, if you can call it that, is that the more this happens, the harder it may be for Trump to use those laws to target his political opponents, though that’s not much comfort.)

Oh, and the recent big push by civil society advocacy groups and others to push for more corporate transparency, for example beneficial ownership transparency and stronger know-your-customer rules? Dead. If anything, I would expect a Trump Administration to be actively hostile to efforts to establish such measures elsewhere.

Trump’s threat to strengthen defamation laws to allow him (or others) to sue media outlets for unfavorable coverage is, I hope, less likely to become a reality, as I hope that even the more conservative Justices of the existing Supreme Court would hold the line on that issue, no matter who else Trump appoints. But a chilling effect on the media is nonetheless a serious concern, as we have seen time and time again that a vigorous press is vital to exposing public corruption.

More generally, I expect that Trump himself will likely be, if not a kleptocrat in the most brazen sense, then at least a quasi-kleptocrat–not directly stealing from the US Treasury, but shaping US policies in ways that are designed to enrich Trump and his associates.

Turning back to the international realm, it probably goes without saying that grander plans to create a stronger international anticorruption architecture will go nowhere under a Trump presidency. Some of these proposals–like the International Anti-Corruption Court–are not ideas that I particularly liked in the first place. But I take no pleasure in the fact that under a Trump Administration, the US is unlikely even to engage in a serious way with meaningful proposals to help fight grand corruption around the world. Anticorruption advocacy groups are going to have to re-think their overall strategies in a world where the United States not only has abdicated its traditional leadership role, but is likely to be actively obstructionist.

So, is there anything to do about this? How can or should the anticorruption community respond? I have no idea. Right now I’m just too depressed to have anything positive or constructive to say. Hopefully that will be for another post in the not-too-distant future. But for now, I thought that maybe getting all these depressing thoughts down in writing would be somehow therapeutic. Honestly, I’m not sure if it was. Now I think I’m more depressed than ever. Sorry.

The principle that the state may not criminally prosecute the same defendant twice for the same conduct—known in most of the world as ne bis in idem (“not twice for the same thing”), and known in the United States as the prohibition on “double jeopardy”—is well-settled and uncontroversial, at least in Western democracies. Much more controversial is whether that principle protects a defendant prosecuted by one country from prosecution by a different country for the same (or closely related) conduct. This question is of particular importance in the context of transnational bribery, where the same conduct might violate the criminal laws of multiple governments. As I discussed in my last post, in Europe, a mix of domestic legislation, international treaties, and court decisions have established an international version of the ne bis in idem principle, providing companies with a reasonable assurance that if they are prosecuted in one European country, they are shielded from further prosecution in another. In contrast, in the United States the prohibition on double jeopardy has been consistently interpreted to prohibit only multiple prosecutions by the same sovereign. US laws thus offer no protection against re-prosecution in the United States after a prosecution abroad.

The power of US prosecutors to go after companies that have already been prosecuted in other countries is enhanced by other powers that European prosecutors can only dream about. As noted in an earlier post, a US prosecutor can pursue a corporation when anyone within that corporation can be shown to have committed a crime, giving the prosecutor considerable leverage. US prosecutors also have finely tuned procedural mechanisms, such as deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs), that are only tentatively being explored in other countries, such as the United Kingdom and France. The DOJ regularly asserts aggressive notions of its territorial powers, claiming, for example, that the use of dollars as the currency of an illegal transaction may subject the participants to US prosecution. US prosecutors have essentially unreviewable discretion their investigative decisions, because unlike many countries in Europe, criminal investigations (and, crucially, the decision to charge) are not supervised or reviewed by judges, as the DC Circuit has recently held.

Taken together, these circumstances risk causing two problems:

First, multinationals may well conclude that when their activities implicate the interests of multiple countries, US prosecutors will be the “ultimate arbiter” of the “adequacy” of criminal outcomes in other countries and will second-guess such outcomes even if the first country has a greater interest in the matter. Even non-US companies with few contacts with the US may thus be tempted to negotiate first with US prosecutors and deal with their home prosecutors later, to the annoyance of the latter. Second, the continued assertion of a perceived US “hegemony” may have unpredictable effects on relationships and cooperation with foreign authorities. In France, for example, the public discussion of the proposed revision to French law on bribery prosecutions (the so-called Loi Sapin II) includes frequent comments that the DOJ targets non-US companies for prosecution only in order to protect US economic interests, and additional French legislation to address perceived US overreach in this area is being considered.

In this context, it would be good international policy and sound common sense if the DOJ were to demonstrate not only that it is committed to cooperating with its foreign counterparts, but that even in the absence of a “double jeopardy” principle it will respect non-US outcomes reached in good faith. In this the DOJ falls short in two important respects:

First, while the DOJ issues detailed “guidelines” on a number of subjects relative to pursuing corporations in general and to corruption investigations in particular, one can look in vain in its published material for any statement how it evaluates the “adequacy” of non-US outcomes and the circumstances under which it will defer to them. This does not appear to be an oversight. Rather, the DOJ seems to have found it difficult to articulate such standards, as revealed by the unusually vague comments senior officials have given when publicly asked for their position on this question. A senior DOJ official recently noted that the Department’s relationship with foreign prosecutors on this subject is a “work in progress” and that the DOJ will “concentrate resources” on “making cases in countries where you may see less activity on the country’s own part.”

Second, the Department’s track record is not clear. In 2014, after a two-year investigation by the DOJ, the Netherlands company SBM Offshore announced that it had reached a negotiated outcome with the Dutch authorities; the next day, the DOJ announced that it would no longer pursue SBM – which caused the company’s shares to appreciate rapidly, and gave hope to European prosecutors that the DOJ would respect similar outcomes. More recently, however, the DOJ has indicated that the DPA signed with Dutch company VimpelCom – in which the DOJ and Dutch authorities split the relevant fines 50/50 – is its model of choice for multi-national prosecutions.

A disproportionate share of the largest FCPA results achieved by the DOJ affect non-US companies. In many, perhaps most, of those cases the underlying events could appropriately have been addressed by prosecutors in countries with greater contacts than the US, a result clearly contemplated by Article 4(3) of the OECD Bribery Convention. The DOJ is undoubtedly sincere in encouraging other countries to prosecute their corporate nationals. But unless it can clearly state its position on when it will respect the outcome of foreign prosecutions, and show that it will not always insist on being the “ultimate arbiter,” it risks inciting nationalist and potentially counterproductive reactions among its important trading partners.

]]>https://globalanticorruptionblog.com/2016/10/25/the-walmart-fcpa-investigation-revisited-again-some-musings-and-speculations-on-the-most-recent-reports/
Tue, 25 Oct 2016 14:00:57 +0000Matthew Stephensonhttps://globalanticorruptionblog.com/2016/10/25/the-walmart-fcpa-investigation-revisited-again-some-musings-and-speculations-on-the-most-recent-reports/Earlier this month, there was yet another intriguing story about new developments in the US government’s investigation into possible Foreign Corrupt Practices Act (FCPA) violations by the Walmart’s foreign operations. The Walmart case is probably the most high-profile (and controversial) FCPA case of the last decade, and the reports suggest that it may finally be lurching toward a conclusion, though the recent story raises as many questions than it answers.

Before proceeding to the most recent developments, here’s a quick, and admittedly oversimplified, recap: In 2005, Walmart received a report from a disgruntled former employee that its Mexican subsidiary had engaged in an extensive bribery scheme to pay off government officials to speed the opening of new stores. After internal investigation, however, Walmart’s executives decided in 2006 not to take meaningful action or disclose the apparent FCPA violations to the US government. In 2011, Walmart’s new general counsel initiated a review of Walmart’s anticorruption compliance worldwide; this audit revealed evidence of significant problems in several countries, including Mexico, China, Brazil, and India. Around the same time, Walmart learned that reporters from the New York Times were conducting an extensive investigation into bribery allegations involving Walmart’s Mexico operations. In attempt to get out in front of the story, in December 2011 Walmart disclosed to the DOJ and SEC potential FCPA problems in its Mexican subsidiary, but indicated that the problems were limited to a handful of discrete cases. In April and December 2012, the New York Times published two lengthy articles (here and here) detailing extensive bribery by Walmart’s Mexican subsidiary, orchestrated by the subsidiary’s CEO and general counsel—allegations that went far beyond the isolated incidents Walmart had disclosed the previous year. Since then, the DOJ and SEC investigation into Walmart’s alleged FCPA violations—not only in Mexico, but in other foreign subsidiaries as well—has been ongoing.

There have been quite a few twists and turns in the story. Perhaps the most dramatic was the Wall Street Journal’s surprising report, from almost exactly one year ago. The highlights from that report included the claims (from “people familiar with the probe”) that (1)the investigation was nearly complete (and, by implication, the case would be resolved soon); (2) the US government’s investigation had found “few signs of major misconduct in Mexico”; and (3) although the investigation had uncovered evidence of “widespread but relatively small payments” in India, the Walmart case turned out to be “a much smaller case than investigators first expected” that “wouldn’t be likely to result in any sizeable penalty.”

The first of those three claims has been refuted by the passage of time—it’s more than a year after the WSJ story, and the case has still not been resolved. The latter two claims are flatly contradicted by the more recent report published by Bloomberg (also based on anonymous “people familiar with the matter”). According to the Bloomberg report:

First, it may be true that at the moment the U.S. government does not have sufficient evidence to prosecute Walmart for FCPA violations in Mexico. But this is not because (as some suggested in the wake of the WSJ’s 2015 story) that the New York Times reporting was inaccurate. Rather, according to this month’s Bloomberg report, the problem appears to be that the bulk of the misconduct in Mexico took place too long ago. The FCPA has a five-year statute of limitations (with a limited extension of three years possible for gathering foreign evidence), but the most serious FCPA violations in Mexico, as reported by the New York Times, took place in 2005 or earlier. Some observers had speculated that the DOJ would find a way around the statute of limitations problem, for example by finding a way to charge Walmart with an ongoing conspiracy (a legal theory that allows the government to treat a set of separate incidents as one criminal act, with the statute of limitations running from the most recent act in furtherance of the conspiracy). If the Bloomberg report is accurate, it seems that the US government couldn’t find a way to make that legal theory work, given the available evidence. But that doesn’t mean that there was not “major misconduct” in Walmart’s Mexican subsidiary. It just means that the misconduct took place long enough ago that the US can no longer bring FCPA charges based on that conduct. (To be fair, last year’s WSJ explicitly noted that the problem with the Mexico allegations may have been that the most serious violations took place too long ago, with the more recent Mexico misconduct much less serious. And I’ll give myself a quick pat on the back for having highlighted exactly this possibility immediately after the WSJ story came out. But that nuance was obscured by the WSJ headline and much of the contemporaneous commentary, which portrayed the WSJ report as having essentially refuted the NYT.)

Second, far from being a relatively minor case with a modest fine, Bloomberg reports that the US government is seeking a penalty of $600 million, based on the profits Walmart allegedly earned through FCPA violations, principally in India and Brazil. If imposed, that would be the third-largest FCPA penalty ever (after the $800 million paid by Siemens in 2008 and the $772 million paid by Alstom in 2014). According to Bloomberg , Walmart is resisting—more on this in a moment—but these reports are certainly inconsistent with last year’s news that there wouldn’t be a substantial penalty.

So, what else can we learn from all this, and what questions does this new report raise? Here are a few scattered thoughts:

Let’s assume for the moment (1) that the U.S. government is convinced that Walmart’s Mexican subsidiary engaged in exceptionally egregious FCPA violations, and Walmart HQ’s handling of the matter in 2005-2006 was grotesquely irresponsible, but also (2) that the statute of limitations on that particular conduct has already expired. Can the government nonetheless take into account the Mexico misconduct when deciding the size of the penalty to demand as part of a negotiated settlement for other misconduct (that occurred within the limitations period)? To be clear, it would presumably be unlawful to try to force a company to pay fines in excess of what it would be obligated to pay for the violations the government thinks it could actually make stick in court. But the government also has a fair amount of discretion in how stubborn or flexible it will be in settlement negotiations. Suppose, for the sake of argument, that based on Walmart’s more recent misconduct in Brazil, the FCPA and associated statutes would permit a maximum fine of $700 million. Suppose further that the DOJ’s usual practice in a case like this would be to settle for something in the neighborhood of $300 million. But suppose the DOJ lawyers decide that Walmart’s earlier Mexico misconduct, though outside the limitations period, shows that Walmart was a sufficiently bad actor that they decide to insist on a $600 million penalty instead. Is that legitimate? Or would taking that out-of-limitations misconduct into account, when deciding on a negotiating position in settlement talks, be legally impermissible or otherwise inappropriate? I really don’t know enough about the law or practice in this area to have a well-considered view, so I’m throwing this out there more as a question.

According to the Bloomberg report, in response to Walmart’s resistance to accepting the $600 million penalty, the DOJ has sent investigators to dig up more evidence about Walmart’s Mexcio operations—presumably to find some way to show either more recent serious violations, or else evidence of an ongoing conspiracy that can help get around the statute of limitations problem. If this is true, it calls into question one common narrative—often advanced by the business community and its academic sympathizers—according to which companies cannot credibly threaten to go to trial (or even risk indictment) on FCPA charges, and the DOJ uses this leverage to extract pretty much whatever settlement the government wants without regard to the actual strength of the evidence. But if that strong, perhaps caricatured version of the narrative were accurate, the DOJ wouldn’t need to send investigators back to gather more evidence; instead, the DOJ could just threaten to indict Walmart if it didn’t capitulate, and the helpless company would have no choice but to comply. The fact that the DOJ is now trying to gather more evidence could be a sign that Walmart has in fact credibly threatened to allow the case to proceed to trial, rolling the dice that it will be able to defeat the government’s most serious charges. Alternatively, even if Walmart hasn’t credibly claimed it is willing to go to trial, it could be that the US government believes that its negotiating position will be stronger if it gathers more compelling evidence, or that it must do so to justify the fine it seeks to impose.

I wonder whether the upcoming presidential election may be playing into both sides’ calculations. On the U.S. government side, as the Bloomberg article notes, there may be some pressure to finalize a settlement before a new president is inaugurated in January. After all, even if Hillary Clinton wins (meaning no substantial change in U.S. government policy on FCPA prosecutions), there may well be considerable staff turnover once a new administration comes in. Perhaps—and this is nothing but raw, uninformed speculation—the DOJ and SEC officials working on this case would like to get it wrapped up on their watch, so they can make the big announcements at the press conference, add it to their resumes when they return to private practice, etc. And perhaps Walmart’s lawyers, recognizing this, feel like they can resist a bit more than they might under other circumstances, in the hopes that the government’s lawyers will be willing to take a cut on the penalty in order to get the case wrapped up. And that’s all on the assumption that Secretary Clinton wins. There’s still an outside chance that Donald Trump—who has publicly denounced the FCPA as a “horrible law”—will be the next president. While it’s not completely clear how a Trump Justice Department would act (and I’d really prefer to avoid thinking about it), it would probably be good news for Walmart, at least with respect to this investigation. Again, Walmart might feel like it has a bit more leverage than it would in other cases because the DOJ and SEC lawyers who have, along with their predecessors, invested five years in this investigation would prefer not to see it go up in smoke if Donald Trump wins the election.

Finally, maybe the biggest lesson from the media reporting on the Walmart case is that we should be hesitant to believe everything we read in the papers, especially when it is based on anonymous inside sources. Let’s see what happens when this thing actually settles. Until then, much fun as it is to speculate, we should recognize that we really don’t know much about what’s going on behind closed doors.

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Fri, 14 Oct 2016 16:03:45 +0000The Protiviti Viewhttps://blog.protiviti.com/2016/10/14/fcpa-successor-liability-dont-go-buying-trouble/https://hoochlaw.com/2016/09/29/this-fines-for-you/
Fri, 30 Sep 2016 00:22:06 +0000Hooch, Esq.https://hoochlaw.com/2016/09/29/this-fines-for-you/ Yesterday, Anheuser-Busch entered into a Cease and Desist Order with the Securities and Exchange Commission, in which it agreed to pay $6 million to the U.S. Treasury (of which $3 million was a fine) for some bad things that happened in India. $6 million is a lot of money. But since we’re talking about bad things happening in India let’s have a bit of fun and instead note that the total payment is approximately ₹401 million. That’s a lot of rupees. And at the current going rate for Budweiser in Mumbai (about ₹110 per bottle), it is also a lot (about 3.6 million bottles) of beer. So what did AB do to find itself in this predicament? Three things: bribery, retaliation against a whistleblower and failing to keep up with a change in law.

A little explanation is in order. In 1977, Congress enacted the Foreign Corrupt Practices Act –which generally makes it illegal for any company with a U.S. presence to make an improper payment to a foreign official in the course of its business. There’s a common belief that the FCPA only applies to public companies. This belief is mistaken; the anti-bribery provisions of the FCPA apply whether you’re public or private. There are additional recordkeeping requirements that are applicable only to companies filing periodic reports with the Securities and Exchange Commission.

With that as background, we turn to what actually happened. From 2009 to 2012, AB owned a 49% interested in an Indian joint venture (the “JV”) – the purpose of which was to manage the marketing and distribution of Crown Beer in India and Nepal. The primary financial officer for AB’s subsidiary – Crown Beers India Private Limited – served as the highest financial officer for the JV, and Crown’s in-house lawyer also served as the JV’s in-house lawyer.

The JV took its responsibility to push Crown’s results very seriously. In fact, they took that obligation so seriously that they crafted a plan to increase sales through what were improper benefits and payments (i.e., bribes) to government officials. But the JV wasn’t so brazen as to be comfortable with paying those officials directly. After all, that might raise suspicion.

Rather than pay the officials directly, the JV worked with two promoters (each of whom had essentially no prior experience in the alcohol industry). They paid the promoters – ostensibly for services – and the promoters turned around and made payments to government officials. And with the benefit of that arrangement, the JV was able to accomplish quite a bit – both in terms of obtaining additional sales of beer and also obtaining regulatory permission to increase production.

All of this raised some suspicion in the mind of one of the Crown employees and in 2010 and 2011, the employee did the right thing by reporting these concerns to his supervisors. But in early 2012, Crown did the wrong thing; it fired the employee.

When his employment was terminated, the employee reasonably concluded that he had a legal claim against Crown. Following mediation, Crown and the employee entered into an agreement resolving his claims against Crown. That agreement contained what for many years was reasonably standard language requiring confidentiality regarding the settlement and releasing claims. But of course what was commonplace for years may not be so forever. And in this case the standard language ran afoul of the whistleblower protections enacted in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. In other words, Crown compounded the FCPA violation by violating another federal law. Bad news.

What are the key lessons for Hooch companies here? First of all, if you’re distributing products overseas don’t use a distributor that you think is going to do something illegal. Do some diligence about the distributor and make sure that it has a reputation not only for being good at selling the products it distributes but also for acting with integrity and in compliance with the law.

Secondly, if someone within your organization reports concerns that your business may not be operating in compliance with law, take those reports seriously and do not take any adverse employment action against that individual. If you retaliate against the employee, you’re probably giving the employee (or former employee) a decent cause of action against you.

Third, take a look at any confidentiality provisions you may have in your standard form documents relative to employees, contractors or other third parties. If they contain language that could be interpreted to prevent that third party from talking with the government about your criminal misdeeds you’ve got a potential problem.

]]>https://fortune.com/2016/09/09/cisco-russia-bribary-sec-doj/
Fri, 09 Sep 2016 19:34:04 +0000jonathanvanian2015https://fortune.com/2016/09/09/cisco-russia-bribary-sec-doj/Cisco has said it will face no enforcement action following a federal bribery investigation involving its business in Russia and nearby countries.

The network giant said in a Thursday regulatory filing that the U.S. Securities and Exchange Commission and the U.S. Department of Justice would not “bring enforcement actions” against it for possible violations of the U.S. Foreign Corrupt Practices Act.

In 2013, Roxane Marenberg, Cisco’s vice president of compliance systems and employee relations, said in a blog post that the SEC and DOJ wanted Cisco to internally investigate its “business activities and discounting practices” in Russia and the Commonwealth of Independent States. The Commonwealth of Independent States includes countries like Kazakhstan, Belarus, and Armenia.

Cisco followed in up with more details in a 2014 filing that said its alleged business activities in the region had possibly violated anti-bribery laws.

In its latest filing, the company said that it had concluded its investigation, which apparently satisfied the SEC and DOJ.

Here’s Cisco’s full statement from the filing:

At the request of the U.S. Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice, we have conducted an investigation into allegations which we and those agencies received regarding possible violations of the U.S. Foreign Corrupt Practices Act involving business activities of our operations in Russia and certain of the Commonwealth of Independent States, and by certain resellers of our products in those countries. We take any such allegations very seriously and we have fully cooperated with and shared the results of our investigation with the SEC and the Department of Justice. Based on the investigation results, both the SEC and the Department of Justice have recently informed us that they have decided not to bring enforcement actions.

The SEC declined to comment to Fortune. Fortune contacted the DOJ and will update this post if it responds.

This past April, the International Organization for Standardization (ISO) released its draft standard on anti-bribery management systems (ISO 37001). The standard is tentatively scheduled to be finalized later this year. In substantive content, the draft ISO standard is similar to the FCPA Resource Guide provided by the U.S. Department of Justice and Securities and Exchange Commission, in that it provides a list of elements that an effective anti-bribery/corruption (“ABC”) program should contain.

In terms of the specific elements listed, the proposed ISO standard provides a number of sound recommendations – such as a comprehensive, risk-based approach, as well as management commitment to promoting an ethical corporate culture—but with a few exceptions, the draft ISO 37001 standard is not much different from the guidance available from the DOJ/SEC and other sources in multiple jurisdictions.

That’s not to say that there is nothing whatsoever distinctive about ISO 37001. It does differ from the existing guidance in some ways, some good (such as the comprehensive focus on documentation, document retention, and document availability) and some not so good (such as the unrealistic recommendations regarding extension of management’s internal control systems to third-party vendors). The draft ISO standard also puzzlingly omits consideration of certain key issues –such as the labor law and data privacy issues that arise in connection with bribery investigations, questions regarding how to address anti-bribery concerns in connection with M&A or joint venture due diligence, and (most generally) the integration of ABC management systems into the firm’s wider financial, operational, and regulatory functions. But, again, in most respects the ISO 37001 draft standard closely resembles existing ABC guidance.

What makes the ISO 37001 standard distinctive, and the reason its finalization would be potentially such big news, is that ISO 37001 (like other ISO standards dealing with more technical matters) is intended to be subject to independent “certification” by third-party auditors. In other words, if and when the ISO 37001 standard is finalized, companies will be able to hire auditing firms to review their ABC programs and (if the auditor determines the firm meets the ISO 37001 criteria) to provide a formal certification that the company is ISO 37001-compliant. The question whether formal ISO 37001 certification of this sort will be a good thing (for firms, or for the world) has been hotly debated (for previous discussions on this blog, see here and here).

From management’s perspective, the most significant benefit of obtaining annual certification are, first, that the certification process can help improve the company’s ABC program, and receiving the certification can reassure the company (and the investing public) that the company has measures in place to prevent, detect, and respond to bribery by firm employees. Second, that the certification that the company has an ISO-compliant ABC program could be useful should the company find itself under investigation for bribery violations; the certification could help management demonstrate that any bribery that may have taken place was in direct violation of the company’s (effective) ABC compliance systems and thus represent a “one-off” occurrence attributable to a “bad apple” employee(s).

However, it is not yet clear how much weight regulators (or the market) will place on an ISO 37001 certification. Recent revelations at Unaoil (where a massive bribery scheme was uncovered, despite the fact that the firm’s anti-bribery program had been certified by a reputable organization) call into question the viability of any independent compliance program certification process. As a legal matter, no certification will offer an affirmative defense for a violation of the U.S. Foreign Corrupt Practices Act or any other international act or regulation to an organization with an ABC compliance violation.

Moreover, the current ISO 37001 lacks clarity on a key question: Will the ISO certification focus narrowly on the existence of the formal elements of an effective ABC program, or will the certification process include an evaluation of whether the program is operating effectively? In other words, will certification be limited to whether firm’s ABC program contains the elements of an effective program, or will the third-party certification under the ISO 37001 standard verify that the components of the ABC program are being implemented properly in practice, taking into account the company’s particular situation, risk profile, and operating environment?

The latter may seem preferable, both from the perspective of reducing global corruption and from the perspective of companies’ desire to reassure investors, government regulators, and the general public. But that approach may not be realistic, mainly because the costs of an annual review process that assessing operation (not just existence) of an ABC program may be substantial, perhaps prohibitive. Indeed, the prices charged by most existing certification firms (the ones most likely to perform ISO 37001 certification) suggest that a thorough examination of actual operation is unlikely. But, of course, if the certification only focuses on the existence of the elements of an effective ABC program, the certification may amount to little more than a check-the-box evaluation that confirms the existence of a “paper program”—an exercise that is less costly for the company, but one that has offers little value to stakeholders.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions, position, or policy of Berkeley Research Group, LLC or its other employees and affiliates.

]]>https://globalanticorruptionblog.com/2016/08/04/fact-checking-the-fcpa-scaremongers/
Thu, 04 Aug 2016 14:00:18 +0000Matthew Stephensonhttps://globalanticorruptionblog.com/2016/08/04/fact-checking-the-fcpa-scaremongers/In my last post, I made a disparaging in-passing reference to assertions, by some critics of the US Foreign Corrupt Practices Act (FCPA), that companies could get in FCPA trouble if they do things like buy a foreign government official a cup of coffee, take her to a reasonably-priced business meal, cover her taxi fare, etc. In my view, that’s just wrong, both because the US government would not bring such a case, and because the FCPA wouldn’t cover such isolated, modest benefits. The reason, as the DOJ/SEC FCPA Resource Guideexplains, is that such benefits, without more, would not be offered “corruptly”–that is, with the wrongful intent of inducing the official to misuse her official position). I described those who suggest that the FCPA would criminalize such minor benefits as “FCPA scaremongers.”

Scaremongering? Recent FCPA enforcement action have included allegations about flowers, cigarettes, karaoke bars, and golf in the morning and beer drinking in the evening.

I responded by asking Professor Koehler to identify the most ridiculous example of an actual FCPA settlement in which a trivial benefit was the sole basis of the enforcement action, as opposed to a small part of a larger scheme to corrupt government officials into misusing their authority. Professor Koehler answered:

The following is a factual statement: recent FCPA enforcement action have included allegations about flowers, cigarettes, karaoke bars, and golf in the morning and beer drinking in the evening.

I take the position that the DOJ/SEC include such allegations in FCPA enforcement actions for a reason and not just to practice their typing skills.

I again asked for an example. Professor Koehler’s response was to send, not the name of any individual case, but rather the links to the DOJ and SEC sites with all enforcement documents, suggesting that I could go through them myself to find “numerous examples of inconsequential things of value” included in the government allegations. He also referred to “several speeches” by SEC enforcement chief Andrew Ceresney (I actually think it’s one speech, given by Mr. Ceresney in November 2015) that supposedly acknowledged the government’s sweeping view of FCPA-prohibited conduct.

Having tried unsuccessfully to get Professor Koehler to point me to a specific example, I did a bit of digging on my own to see if I could find out if it’s really true that the DOJ and/or SEC have brought FCPA enforcement actions in cases that involve nothing more than “flowers, cigarettes, karaoke bars, and golf in the morning and beer drinking in the evening.” What I found makes me even more confident that I was fully justified in my use of the term “FCPA Scaremongers,” with Professor Koehler as perhaps the FCPA Scaremonger-in-Chief. Here are the cases to which I’m fairly sure Professor Koehler was referring:

SEC v. Eli Lilly & Co. (2012): I think Professor Koehler is getting the “cigarettes and karaoke bars” from the 2012 settlement with Eli Lilly, and in particular allegations regarding Lilly’s Chinese subsidiary’s bribery of Chinese doctors and health officials. (The complaint also discusses bribery schemes in Brazil, Poland, and Russia.) According to the complaint, among the benefits that Lillly-China sales reps offered to Chinese doctors were “spa treatments, meals, and cigarettes,” as well as “visits to bath houses and karaoke bars.” But as the complaint emphasizes, “[a]lthough the dollar amount of each gift was generally small, the improper payments were widespread throughout [Lilly’s Chinese] subsidiary.” According to the allegations, this was an orchestrated scheme, involving sales directors and regional managers in multiple provinces, to influence Chinese healthcare providers to purchase Lilly’s products. Further, the scheme involved falsified books and records–mainly falsified expense reports, which were used to cover the costs of the bribes. There’s no way to describe what Lilly’s sales reps in China were doing as ordinary, innocent, non-corrupt business-related socialization.

In re SciClone Pharmaceuticals, Inc. (SPIL) (2016): I suspect this must be where Professor Koehler is getting “golf in the morning, beer drinking in the evening.” This is also a case involving a pharma company operating in China, and engaging in a sustained practice of offering gifts, vacations, and other benefits to Chinese healthcare professionals (HCPs). The SEC’s cease-and-desist order alleges that SPIL’s sales reps “provided weekend trips, vacations, gifts, expensive meals, foreign language classes, and entertainment to HCPs in order to obtain an increase in prescriptions”–a practice that the sales managers themselves described as “luring [the HCPs] with the promise of profit.” The SEC order goes on to list examples of some of the benefits that SPIL sales reps provided to those HCPs with the greatest ability to increase SPIL’s sales volume. Among these benefits were not only yearly invitations to the Qingdao Beer Festival (with “golf in the morning and beer-drinking in the evening”), but also included fancy dinners, lavish vacations (to the US, Japan, and domestic Chinese resorts), expensive gifts, etc. And these expenses were falsely recorded in SPIL’s books and records as things like business travel and conference honoraria, to disguise their true nature. Again, this was not a case that involved some business discussions over a friendly round of golf, followed by a series of substantive meetings, with a few drinks afterward ad the local bar–and it’s highly misleading to suggest otherwise.

SEC v. Veraz Networks (2010): I think this must be where Professor Koehler is getting “flowers.” The SEC complaint in this case alleged that Veraz, a U.S. telecommunications company, violated the books and records provisions and internal controls provisions of the FCPA. (Perhaps, therefore, it’s important to emphasize right at the outset that even though the allegations in the complaint indicate bribery, the actual charges are under the FCPA’s accounting provisions, which in and of itself undercuts the suggestion that this case shows the absurd overbreadth of the anti-bribery provisions: Even the most innocent of expenses have to be properly recorded, and made pursuant to a reasonable system of internal controls.) It’s true that the complaint lists “flowers for the wife of the CEO” of a state-owned Vietnamese telecommunications company as one of the “questionable expenses” that Veraz approved (and failed to properly record in its books and records). If that were all there was, it might indeed be a sign of prosecutorial overreach. But it’s not all there was. The complaint also alleges other questionable “gifts and entertainment” for the Vietnamese company’s employees, as well as–more damningly–that a Veraz employee “made or offered illicit payments” to the CEO himself in order to win business for Veraz. (And this is on top of other allegations, also discussed in the complaint, about thousands of dollars worth of straight-up bribes paid in China, approved by a Veraz supervisor as part of what the supervisor himself described as a “gift scheme” to win business.)

So, after looking at the three cases from which I’m 95% confident Professor Koehler is getting his examples, I’m even more confident that these are not examples of FCPA enforcement actions brought on the basis of trivial, routine, incidental benefits provided to government officials in the course of ordinary business dealings. That’s not to say those cases might not be subject to other criticisms, such as the evidentiary support for the allegations and legal questions like the definition of “foreign official”–but that’s not what we’re focusing on right now.

And what about Mr. Ceresney’s speech, which Professor Koehler cites as evidence that the SEC and DOJ are willing to bring cases over trivial benefits provided in the context of ordinary business socialization and hospitality? I read the speech, and I’m at a loss as to where Professor Koehler is getting this concern. For what it’s worth, here’s the relevant passage from Mr. Ceresney’s speech:

Some have expressed concern about these cases, arguing that it is difficult to draw a clear line between what constitutes a violation and what does not, in cases involving less traditional items of value. In my view, these concerns are unfounded. The line between what is acceptable and what constitutes a violation of the law is in the same place it always has been: when something of value – which can include a gift, donation, favor, or hiring decision – is given or taken with intent to influence the foreign official in his or her official actions or obtain an improper advantage. While this analysis is dependent on the facts and circumstances of each particular case, it is the same analysis companies routinely conduct when considering how their employees interact with government officials in the course of business. The relevant questions include:

Was the gift, donation, favor, or hiring asked for by the foreign official?

Did the company official believe that the gift, donation, favor, or hiring would advance their business interests and help them obtain particular business, or at least obtain an improper advantage with the foreign official?

Was the gift, donation, favor, or hiring consistent with company policy and practice?

Were the company’s normal procedures followed in connection with the gift, donation, favor, or hiring?

Would the gift, donation, favor, or hiring have been made if there were no potential business benefit?

That all sounds fine to me. What’s to be upset about here?

One final point: In an apparent concession that there are not, in fact, any cases where small benefits, offered in the course of ordinary business hospitality, are the basis for an FCPA enforcement action, Professor Koehler insists that “[b]y including the substantive allegations [of the small benefits] in the enforcement action documents, even if the inconsequential things of value allegations are only part of the overall conduct at issue, the DOJ/SEC – it sure would seem – are suggesting that the conduct is prohibited by the FCPA.”

Um… no. No, it would not “sure seem” that the SEC and DOJ are saying that they would or could bring an enforcement action on the basis of small items (like the bouquet of flowers for the CEO’s wife) standing along. A lawyer who so advised a client would be acting incompetently. Three main reasons:(1) As a matter of both simple logic and standard practice, the mention of one specific factual assertion in the context of a criminal complaint (or settlement document or judicial opinion) need not and does not mean that this fact, standing alone, stripped of the larger context, would support a criminal conviction. (2) The DOJ and SEC have explicitly disavowed precisely the enforcement theory Professor Koehler intimates they’ve implied in various settlement documents (To quote the Resource Guide: “[I]t s difficult to envision any scenario in which the provision of cups of coffee, taxi fare, or company promotional items of nominal value would ever evidence corrupt intent …. DOJ’s and SEC’s anti-bribery enforcement actions have focused on small payments and gifts only when they comprise part of a systemic or long-standing course of conduct that evidences a scheme to corruptly pay foreign officials to obtain or retain business.”). (3) Perhaps one might disbelieve the DOJ/SEC denials in the Resource Guide… except that, to circle back to where we started, I have yet to see a single case which is inconsistent with the Resource Guide on this point.

In sum, there is no evidence whatsoever that a trivial benefit–flowers, golf, beer, etc.–is, without more, enough to support an FCPA enforcement action, or that the U.S. government would ever bring such a case. To imply otherwise, as Professor Koehler did is is comment on my last post and in numerous other posts on his blog (see here and here, for instance) is indeed scaremongering, and I’ll stand by that term.

]]>https://globalanticorruptionblog.com/2016/08/02/does-the-fcpa-require-a-quid-pro-quo-further-developments-on-the-jp-morgan-sons-daughters-case/
Tue, 02 Aug 2016 14:00:44 +0000Matthew Stephensonhttps://globalanticorruptionblog.com/2016/08/02/does-the-fcpa-require-a-quid-pro-quo-further-developments-on-the-jp-morgan-sons-daughters-case/One of the Foreign Corrupt Practices Act cases we’ve been paying relatively more attention to here on GAB is the investigation of JP Morgan’s hiring practices in Asia (mainly China), in connection to allegations that JP Morgan provided lucrative employment opportunities to the children of powerful Chinese officials–both in the government and at state-owned enterprises (SOEs)–in exchange for business. A couple weeks back the Wall Street Journal published a story about the case, indicating that the government and JP Morgan were likely to reach an agreement soon in which the firm would pay around $200 million to settle the allegations. (The WSJ story is behind a paywall, but Thomas Fox has a nice succinct summary of both of the case generally and of the recent developments reported by WSJ.)

I’ll admit that my first reaction, on seeing the WSJ report, was skepticism that we were actually on the verge of seeing a settlement announcement. After all, the last time the WSJ broke a story about an imminent settlement of an FCPA case we’ve been following here on GAB, it was a story about the Walmart investigation last October; that report said that “most of the work had been completed,” and hinted that the announcement of a (smaller-than-expected) settlement was imminent. It’s now nine months later… and still no settlement. Apparently the Walmart case may have gotten more complicated since the WSJ‘s October report, but still, I think there are sometimes good reasons to season these inside scoops with the appropriate grains of salt. But, back to the reports on JP Morgan’s Asian hiring practices.

To me the most interesting feature of the recent report concerns the legal issue that is reportedly the sticking point between the government and JP Morgan. That issue is not the question whether an SOE official is a “foreign official” for FCPA purposes: According to the WSJ report, JP Morgan is not disputing the government’s position that SOE executives, at least in this case, are foreign officials, even though that issue is a major focus of critics who believe the government’s interpretation of the FCPA is too broad. And, the question whether a job for a relative counts as “anything of value”–the question that provoked the extended blog debate between Professor Andrew Spalding and me, as well as a good chunk of the other commentary on the case–also does not seem to be something that JP Morgan is contesting. Rather, at least according to the WSJ report, the big question seems to be whether an offer of a job to an official’s relative, given with the intent to influence that official’s exercise of her duties, is a violation of the FCPA even if there is no quid pro quo–at least if the conduct takes place in a country where preferential hiring for official’s relatives is “standard business practice.”

This seems to be to be a legitimately hard legal question, and one where I’m not yet sure what I think. As our regular readers may know, I’m generally fairly “hawkish” on FCPA enforcement, usually sympathizing with the government’s broad reading. And the text of the FCPA can certainly be read not to require any quid pro quo–indeed, that might be the more natural reading. But in contrast to some of the other accusations of alleged overreach lodged against the US FCPA enforcement agencies, here (if the reports are to be believed) the argument on the other side is fairly strong, both as a matter of law and as a matter of policy. In the end, I think I still come down on the government’s side, both on the legal question and the policy issue. But I’m genuinely conflicted, and would very much like to hear what others think on this one.

First, some quick background on the statute for those who haven’t committed it to memory. Simplifying a bit (but not, I hope, too much for present purposes) the FCPA, as relevant to this case, prohibits JP Morgan and other covered entities from “corruptly … offer[ing] … or authoriz[ing] the giving of anything of value to any foreign official for purposes of influencing any act or decision of such foreign official in his official capacity … in order to assist … in obtaining or retaining business….” Let’s stipulate that there’s no question that JP Morgan gave something of value (the job to the relative) to a foreign public official, with the purpose of influencing that official’s decisions so that they would favor JP Morgan’s business interests. But let’s also assume that there was never any express quid pro quo, or even a tacit agreement. Rather, let’s assume that JP Morgan provided these jobs to officials’ relatives with the hope and expectation that doing so would make the officials more likely to throw business JP Morgan’s way. Is that an FCPA violation? Or is a quid pro quo required?

Note that the FCPA language quoted above does not require a quid pro quo in so many words. The operative language covers giving anything of value for purposes of influencing the foreign official in the exercise of her duties, in order to secure a business advantage. One can clearly provide benefits “for the purpose” of influencing a decision without an agreement that the benefits are being provided in exchange for the decision. All the action, then, is in the adverb corruptly.That word is not defined in the statute; the legislative history of the FCPA, as quoted in the government’s FCPA Resource Guide, says that an offer or payment is made “corruptly” when it is “intended to induce the recipient to misuse his official position.” The key word in that explanation (which otherwise doesn’t add much to the statutory language) is misuse, which fits with the understanding, applied in other areas of law, that act is done “corruptly” when it is in some sense intentionally wrongful.

So, can an offer be made “corruptly” even if there’s no agreement? If the question is asked that generally, I think the answer has to be yes. If a company showers an official with cash and luxury gifts, and we learn (or have strong enough evidence to confidently infer) that this was done with the expectation and intent that it would help win business that the firm wouldn’t otherwise get, this should count as benefits given “corruptly”–that is, for a wrongful improper purpose.

But here’s where things start to get a little tricky, for two reasons:

First, part of our understanding of whether an offer is made “corruptly” is with reference to ordinary business practices in the relevant context. When FCPA scaremongers suggest that the statute would criminalize buying a government official a cup of coffee or taking her out to a nice dinner after a business meeting, the DOJ/SEC can rightly respond that, not only would the government never prosecute such cases, that conduct probably isn’t prohibited by the FCPA in the first place. Such acts–though indisputably the provision of things of value, and likely intended to influence the public official in the broad sense of cultivating goodwill–were not done “corruptly”; no reasonable person would interpret them as a wrongful attempt to get the official to misuse her authority. As the government puts it in the Resource Guide: “[C]orrupt intent requirement protects companies that engage in the ordinary and legitimate promotion of their businesses while targeting conduct that seeks to improperly induce officials into misusing their positions.” But although I’m usually not a big fan of cultural relativism arguments in the FCPA context, it seems plausible that what counts as “ordinary and legitimate promotion” might vary from context to context. Is it possible that giving preferential treatment to official’s relatives in some contexts is so common that it would not be viewed as a wrongful attempt to get an official to misuse her position, but rather as a courtesy along the lines of the cup of coffee.

Second, even without invoking cultural relativism, we might conclude that ingratiating one’s firm with the powerful and well-connected by hiring their friends and relatives may in fact be fairly common–so common, in fact, that the acts would not be considered “corrupt” by most people in the relevant community (that qualifier invites important questions, but hold them for the moment). In earlier posts, when I’ve taken on the folks who assert that a job for an official shouldn’t count as “anything of value” under the FCPA because doing so would criminalize common practices in the US–ones that practically every firm engages in–I’ve been quick to dismiss those arguments. But I’ve done so in part by emphasizing that the hiring must be done with corrupt intent, and that if in the US a prosecutor found evidence that a firm had offered a federal official’s child a job as part of a quid pro quo deal with the government official for favorable treatment, that almost certainly would be viewed as a federal crime and prosecuted as such. Looking back, I think I may have been a bit to cavalier in my dismissal of the concern, if only because I was assuming (without really thinking about it) that all the FCPA cases we might see in this vein would involve a quid pro quo. Indeed, the news reports suggested strong evidence that there was a quid pro quo in the JP Morgan case. But if the FCPA doesn’t require a quid pro quo in these cases, then we do have to confront the question of whether this creates a sufficiently awkward double standard that we might not even consider the job offer “corrupt” in the legal sense.

So that’s what I’m struggling with. At the moment, I’m still tentatively inclined to think that these job offers, when made with the express purpose of influencing particular official decisions, should still count as FCPA violations, for the following reasons:

On the cultural relativism argument, as a general rule the fact that a practice is widespread and widely tolerated does not cut much ice in FCPA cases. Indeed, the statute seems to signal quite clearly its hostility to such arguments by creating an affirmative defense under which the defendant must show the conduct was legal under the express written laws of the host country. In practice, this defense is hardly ever invoked, and never invoked successfully. But its mere presence signals fairly strongly that the statue admits of no other limitations grounded in alleged different understandings of what constitutes a bribe.

A case-by-case analysis is appropriate here, and may help distinguish “thumb on the scale” preferential hiring from gross attempts to offer jobs to relatives as inducements to public officials. The three key considerations, to my mind, ought to be (1) the degree of connection between the job offer and a particular official decision, or set of decisions (as distinct from general goodwill and connections); (2) the degree to which the official indicated that he very much hoped the firm would hire the relative (even if there was not enough evidence of agreement to establish a quid pro quo); and (3) the degree to which the firm relaxed its ordinary standards to hire the official’s relative. On that last point, just as we can distinguish the nice business meal from the luxury all-expense paid vacation, and the cab fare from the private jet, so too we can distinguish between the hiring of a well-qualified candidate whose personal family connections might have been a “plus factor” from the hiring of a lazy and incompetent relative whose only benefit to the firm is favorable treatment by the powerful relative.

On the point about how such hiring practices are common in the US, the above point mostly covers it, but to that I’d add that many of the arguments I made in the earlier post would still be valid: just because something is widespread here doesn’t make it good, and maybe the push to crack down on this behavior in foreign markets might have the salutory effect of getting us to take a harder look at ourselves.

For those reasons, I think JP Morgan likely violated the FCPA in this case even if there wasn’t a quid pro quo. But as I said at the beginning, I’m not at all certain about this, and I do hope others who have thoughts will weigh in.

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Fri, 22 Jul 2016 14:00:53 +0000Sarah Gitlinhttps://globalanticorruptionblog.com/2016/07/22/sextortion-victims-are-not-guilty-of-bribery/On this blog, I have repeatedly called for the anticorruption community to put greater emphasis on fighting sexual corruption around the world. I have argued that a police officer demanding sex in order to perform (or not perform) an official function is a form of bribery; in a few cases, officials have been charged with and convicted of bribery or official misconduct for sexual corruption.

Characterizing this sort of sexual coercion as bribery, however, raises a potential problem: In typical monetary corruption cases, it is possible to prosecute the bribe giver as well as the bribe receiver. Does that mean that the private citizen (almost always a woman) from whom sexual favors are extorted by a public official could be deemed to have “paid” an unlawful bribe? Unfortunately, the idea of charging victims of sexual corruption with bribery is not too far-fetched. In one New York case, two police officers demanded sex from a female motorist if she wanted to avoid arrest (for drugs found in her car); at the officers’ trial, the jury was instructed that the woman was an accomplice as a matter of law to bribe receiving. The appellate court wrote that the test for whether the woman can be considered an accomplice is whether she “theoretically could have been convicted of any crime based on at least some of the same facts that must be proven in order to convict the defendant.” And because the woman in this case acquiesced to the officers’ demands, she met the definition of an accomplice to bribe receiving. (She was not charged, but according to the court she could have been.)

Thus one potential concern with heeding the call to treat so-called “sextortion” as a corruption offense (that is, soliciting a bribe) is that it could lead to greater use of anti-bribery laws to charge the women from whom sex is extorted. (For example, suppose an American businesswoman had sexual relations with a foreign procurement officer as a quid pro quo for receiving a government contract; the businesswoman in this case could conceivably be charged with violating the Foreign Corrupt Practices Act.) It will be crucial to ensure that this never happens. This can be accomplished through a generous interpretation of coercion as a defense to bribery, informed by the existing American jurisprudence on sexual harassment in the employment setting.

In explicating the reasons why a woman who has sex with a public official as part of a quid pro quo exchange should never be charged with bribery, it is helpful to consider separately three cases, from easiest to hardest.

The easiest case for rejecting the idea that the woman providing sex is a culpable bribe-giver would be a situation in which a public official demands sex in exchange for something to which the woman is already entitled (for example, when a police officer demands sex from a woman in exchange for not arresting her, even though the woman has done nothing wrong). In such cases, it is clear that the sexual bribe was extorted through coercion.

Although the question might initially seem harder, the same reasoning ought to apply in cases where an official demands sex in exchange for something that a woman is not otherwise entitled to (for example, when a police officer demands sex in exchange for declining to arrest a woman who has in fact committed a crime). Although here the woman does receive an improper benefit in exchange for providing sex to the official, it is still better to treat these cases also as involving coercion. An analogy to American sexual harassment jurisprudence in the employment context may be useful here: in that context, an employee is never held complicit in her harassment for complying with the sexual demands of a superior; she can still recover damages for sexual harassment, and will not face liability herself, even if she received an “undeserved” benefit, such as a promotion, for acquiescing to the sexual encounter. The rationale is that the employee has so little power compared to the employer that coercion by the latter can be presumed. The same logic should apply to sextortion.

There is an additional reason that all cases involving a sexual quid pro quo should be deemed per se coercive, even if in cases of monetary bribes a court might legitimately inquire into whether the bribe was paid voluntarily. If a public official demands sex in exchange for a benefit, even a benefit that the woman is not entitled to, he has gone so far over the line of acceptability (far further than demanding monetary bribe) that a reasonable woman could easily fear that she does not have a legitimate choice and that violence would result if she attempted to say no. The sex would be implicitly coerced, even if it is not explicitly coerced. Professor Stephen Schulhofer, speaking in the employment sexual harassment context, put it well: “Corrupt sexual offers are also coercive when they arouse fear of more subtle types of retaliation, including exposure to unusually meticulous oversight or the biased oversight of a supervisor’s discretion.”

Moreover, if a police officer demands a monetary bribe, there is usually an obvious moment where someone has to decide whether to comply. In most cases, it takes an affirmative action on the part of the member of the public to pull out money and hand it to the officer. Sex is different. Imagine the following scenario, which has played out far too many times: A police officer discovers drugs in a woman’s car. He begins to search her, and his hands linger, groping her breasts and her groin. She is frozen, horrified and scared. He demands that she removes her underpants so he can complete the search. Before she knows it, he is on top of her, having sex with her. When he is done, he leaves without arresting her. At what point during this encounter does the woman become guilty of the felony of offering a bribe? What actions would she have had to take to avoid liability? A sexual quid pro quo, in contrast to a monetary quid pro quo, may not require the active acquiescence of the victim, and it is therefore justifiable to presume coercion in such cases, even if the victim receives an “undeserved benefit.”

Arguably the hardest cases for the proposition that the woman who has sex with a public official in exchange for a benefit should never be found guilty of bribery are those in which the woman initiates the encounter, offering sex in exchange for a benefit to which she is not entitled. But even here, regardless of who proposed the exchange, if those with public power are using that power to gain access to sexual favors in exchange for public actions, only the public official, and not the woman, should face corruption charges. There are three reasons for this:

First, legal consent cannot exist in contexts where the power imbalances are extreme – for example between prison guards and inmates, or between psychologists and their patients. Does a prison guard have greater power over a woman than a police officer who holds the power of freedom or imprisonment? A desperate woman who initiates an offer of sex to a police officer in order to stay out of jail and potentially keep custody of her children is not giving true consent. The same is true for sexual encounters with other types of public officials who carry significant power over women’s lives.

Second, even if the fear or desperation of those who offer or agree to sex is not actually greater compared to those who offer money (and can be charged with bribery), the women who endure the sex with officials have already been “punished” to a far greater degree than those who paid a cash bribe. There may be isolated cases where the woman does not mind having sex with the official, but those will be so rare and so difficult to prove that we should simply presume that the experience is awful for all women.

Third, a rule that a woman could be charged with bribery if (but only if) she proposed the quid pro quo would have bad incentive effects. Victim reporting rates in sextortion cases are already very low; leaving it up to prosecutors as to whether to charge the victim would therefore dramatically lessen the already paltry incentives to report. After all, a woman who has been the victim of sextortion could reasonably fear that officials, in loyalty to each other and out of revenge for reporting, would charge her with initiating the encounter, even if she had not done so. Such a system would also encourage officials, in an attempt to lessen their own responsibility, to put blame on the victim, which would simultaneously make it less likely that victims come forward and perpetuate the victim-blaming culture that all too often surrounds sexual assault

That said, there is one situation in which a woman could be charged with bribery for proposing a sexual quid pro quo: If the woman initiates an offer of sex in exchange for an undeserved benefit, but the official does not accept it, then the woman is guilty of attempted bribery. In that case, the presumption that the woman was coerced would be untenable, and she could not claim to have been the victim of a sexual assault. Rather, she would be in essentially the same position as someone who offered a cash bribe but was rebuffed.

In sum, when a public official has sex with someone (again, in the vast majority of cases a woman) as part of a quid pro quo involving that official’s authority, the public official is guilty of taking/extorting a bribe, but the woman should never be deemed guilty of paying a bribe–even if the woman received a benefit to which she was not otherwise entitled, and even if the woman was the one who proposed the exchange.

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Wed, 06 Jul 2016 14:00:50 +0000Rick Messickhttps://globalanticorruptionblog.com/2016/07/06/compensating-corruption-victims-american-law-on-bribery-damages/Parties to the UN Convention Against Corruption pledge in article 53 to “pay compensation or damages to another State Party that has been harmed” by an act of corruption, but nowhere does the convention say who it is that is harmed by corruption or how compensation is to be calculated. In a submission to the 2015 meeting of convention parties, the UNCAC Coalition, an global network of civil society organizations, argued that the absence of guidance is “one of the main obstacles to the award of damages to victim countries” and urged the publication of “best practice examples with respect to the identification, quantification and reparation of the damage caused by corruption” as step in developing the needed guidance.

This writer recently summarized how American courts deal with compensation issues when the corrupt act is the payment of a bribe. Written for the Open Society Foundations’ Justice Initiative, the paper explains that under both federal and state law individuals, businesses, and even foreign governments can recover damages for injuries sustained as a result of bribery and that with passage of the Foreign Corrupt Practices Act the number of cases has exploded. Not all claimants have been successful of course. In some actions their damages were too remote (not proximately caused in legal language); in others claimants failed to show how the bribery injured them, and in some cases foreign governments were denied recovery because their officials were so deeply involved in the bribery scheme that the government did not qualify as a victim under U.S. law. But other claimants have enjoyed significant success — realizing in some instances awards in the tens of millions of dollars.

Whether American law is a “best practice example” of the kind the UNCAC Coalition had in mind I don’t know. But it is an example, and one, given the creativity of American lawyers (spurred by the chance for a lucrative fee), that provides those thinking about victim compensation for corruption a rich vein of case law to explore.

]]>https://globalanticorruptionblog.com/2016/06/28/a-different-kind-of-quid-pro-quo-conditional-asset-return-and-sharing-anti-bribery-settlement-proceeds/
Tue, 28 Jun 2016 14:00:19 +0000Matthew Stephensonhttps://globalanticorruptionblog.com/2016/06/28/a-different-kind-of-quid-pro-quo-conditional-asset-return-and-sharing-anti-bribery-settlement-proceeds/In my last couple of posts, I’ve returned to a theme I’ve written about before: My skepticism about claims that the U.S. government either should (as a matter of policy) or must (under UNCAC or other legal obligations) share settlement proceeds in FCPA cases with the governments of the countries where the bribery took place. I’m also skeptical that there’s any obligation on the part of U.S. or other supply-side enforcers to use any of this settlement money to fund NGO-sponsored projects in (or for the benefit of) those countries.

Asset recovery, however, is different. When the U.S. (or some other country) identifies – at its own initiative or pursuant to the request of another government – assets held in the U.S. that have been stolen from a foreign government, my reading of the law (both conventional domestic legal principles and Chapter V of UNCAC) is that the U.S. has an unconditional legal obligation to return those assets to their rightful owner. At times, the U.S. has indicated that, although it has a general policy of returning stolen assets to the governments from which they were stolen, it does not view this as a legal obligation. Rather, the U.S. seems to want to leave open the option, in some cases, of attaching conditions to the return of the assets, or funneling them through NGOs or other bodies, rather than simply turning them over to the claimant government. I understand why the U.S. has taken this position: Returning assets stolen assets to a claimant government with a reputation for pervasive corruption—where it seems highly likely much of the money will be stolen again—seems awfully unappealing, and doubly so in those cases where the government officials who stole the money in the first place, or their family members and cronies, retain their power and influence in the claimant country. Hence the instinct to attach conditions to the return of the assets, or to use the money to fund NGOs rather than simply turn it over to the claimant government. The problem, though, is that I’m hard-pressed to come up with a legal basis (notwithstanding some valiant attempts) for doing anything other than handing over the money.

So, the situation as it stands looks something like this (and I acknowledge simplifying quite a bit to make things a tad neater than they actually are): On the one hand, many developing countries want wealthy countries like the U.S. to share foreign bribery settlement proceeds with the countries where the bribery took place, but for the most part the wealthy countries do not want to do this, and assert—correctly—that they are under no obligation to do this under UNCAC or any other legal instrument. On the other hand, many wealthy countries would like to retain the flexibility to attach conditions to asset return (or to use seized assets to fund NGO programs rather than turning the money over to the governments), but the claimant countries in the developing world assert—correctly—that there is a legal obligation (enshrined in UNCAC) to return stolen assets, without strings attached.

Framing the issue this way suggests a possible compromise. (In the interests of disclosure, I should say that this is not my original idea: It came up in a conversation I had recently with an analyst at an anticorruption NGO, but since I haven’t had the chance to clear it with him, I won’t name the person or organization here.) The trade would go like this:

Wealthy countries, like the United States (and the UK and Switzerland and others) would agree to devote a portion of settlement proceeds in foreign bribery cases to funding activities that would help the citizens in victim countries. The enforcing governments would retain the discretion whether to transfer this money to the government of the country where the bribery took place, or to transfer it with conditions (for example, that the money be earmarked for particular purposes), or to bypass the government by funding charitable projects in those countries.

In exchange, developing countries would acquiesce to a change in the legal regime so that, when a country seizes assets that were stolen from another country, the seizing country would have the discretion to decide that, instead of automatically and unconditionally transferring the money back to the government of the claimant country, the seizing country would have the same discretion as proposed above for transferring settlement proceeds: that is, to transfer the assets with conditions attached, or to use the assets to help the citizens of the claimant countries without actually transferring the assets back to the claimant country government.

I wanted to throw that idea out there for discussion, but I should be clear that I’m not at all sure (A) whether it’s politically viable, or (B) whether it’s actually a good idea.

On the subject of political viability, it’s not clear whether the U.S. really has very strong incentives to make any sort of bargain. As things stand, the U.S. does not make a practice of sharing settlement money, and insists that it retains the discretion to attach conditions to asset return. For both of these positions, the U.S. gets a lot of flak from developing countries and NGOs, but it’s not clear how much the U.S. government actually cares. But perhaps if the U.S. starts to come under sufficient political pressure on both points, a bargain like that sketched above might begin to look more appealing. With respect to developing countries, the ones who would probably like this bargain the most are the ones to which the U.S. would already be disposed to return assets without conditions, but where there are lots of foreign bribery cases. The ones who would like it least are those that care a whole lot more about recovering stolen assets (and getting that money back into the national treasury), and which have overall bad reputations for government corruption (and so are the most likely candidates for conditional transfers or direct-to-NGO transfers, if those are options).

As for whether this is a good idea, who knows? I’ve expressed plenty of skepticism in prior posts about demands that the U.S. share FCPA settlement proceeds with demand-side countries, but I’m actually quite open to the idea that there could be a policy of requiring corporate defendants, as a condition of the settlement agreement, to fund worthy projects in the countries where they’ve engaged in corrupt acts. And, as I said above, I can see the policy arguments in favor of allowing more flexibility in asset return. But I haven’t really thought this through in any depth, so for now I just wanted to put this on the table to see what other people think.

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Tue, 21 Jun 2016 14:00:44 +0000Matthew Stephensonhttps://globalanticorruptionblog.com/2016/06/21/victim-compensation-arguments-cut-both-ways/In my last post, I imagined what a frustrated U.S. official might have to say about the ever-increasing drumbeat of demands for the United States to “return” (that is, transfer) the “proceeds of crime” (that is, the fines collected from corporate defendants in Foreign Corrupt Practices Act (FCPA) cases) to the “victim countries” (that is, the governments whose officials took the bribes that gave rise to the FCPA violations). My imaginary rant was deliberately over-the-top, intended to be provocative and to stir up some more honest debate on this topic by cutting through the circumspection and diplomatic niceties that usually accompany pushback against the “give the settlement money to the victim countries” position. In this post, I want to continue on the same general topic, and in the same provocateur’s spirit, by asking the following question:

When (or if) demand-side countries start collecting serious fines against bribe-taking public officials and/or bribe-paying companies, does the logic of compensating “victims” dictate that these countries transfer some of the money they recover to the United States?

At the risk of seeming totally bonkers, I’m going to assert that the answer might well be yes if one accepts the logic for making transfer payments in the other direction (from the U.S. government to the governments of the countries whose officials took the bribes) in FCPA cases. Here’s the argument:

The case for transferring a portion of FCPA fines to the so-called “victim countries” is not based on any viable claim that the demand-side country’s government is actually a “victim” in the traditional, narrow sense. Rather, the idea is that corruption – or, to be more specific, bribery of a country’s officials by a foreign corporation – hurts that country’s citizens, in ways that are usually indirect and hard to quantify. Perhaps the services or goods provided by the bribe-paying foreign firm will be more expensive and/or lower quality than would have been the case if the firm had not paid bribes. That won’t always be true, or at least it will often be hard to show in any individual case: Maybe if foreign firm X hadn’t paid bribes, the contract would have gone to a different bribe-paying competitor, or maybe the corrupt official in charge would simply not have allowed a socially valuable project to go forward in the absence of a bribe. But no matter: There’s a plausible case that the practice of transnational bribery as a practice hurts the country where it takes place. If so, then if a foreign company has engaged in that bad practice, we can assume (according to the proponents of transferring FCPA settlement proceeds) that this company has “victimized” the citizens of the country, and so – the argument continues – some of the penalties the company pays to the supply-side enforcer for its malfeasance should go to the demand-side country’s government (with the latter serving as a representative of the “victims”), or perhaps instead to some charitable organization doing good works for the demand-side country’s citizens.

OK, fine, but if we accept that logic – that monetary penalties recovered in bribery cases ought to be used to help corruption’s “victims” – shouldn’t we also consider other victims of corruption? And who else is harmed when Company X pays a foreign official a bribe to, say, secure a government contract to provide some good or service? Well, the most obvious victims are competitor firms (and their employees and shareholders). Indeed, competitors are harmed much more directly than the citizens of the country where the corruption took place. True, it may be difficult to prove, in any given case, that any particular competitor firm lost out on specific business opportunities because of Company X’s unlawful bribes, or to quantify the damage. But it’s hard to gainsay that these competitor companies have been “victimized” (both by the bribe-paying firm and by the public official who accepted, and often demanded, the bribe payment).

By this reasoning, when China secures a nearly half-billion dollar settlement against the pharmaceutical giant GSK, China should have to pay a portion of that money to the governments of the United States, Britain, Germany, or any other country whose companies might have been competing for the contracts that GSK ultimately won. After all, shouldn’t China – the enforcing jurisdiction in this example – have to “compensate” the “victims” of the defendant company’s corruption, as represented by those victims’ governments?

For that matter, if demand-side countries start cracking down on bribe-taking by their domestic public officials, and punishing them with fines or disgorgement (not just prison time), doesn’t the logic of “victim compensation” compel these demand-side governments to turn some of that money over to the governments of the individuals or companies those officials had shaken down? Consider Nigeria, which has been adamant about securing the return of all of the assets held by former dictator Sani Abacha, and which has also been at the forefront of efforts to insist that supply-side jurisdictions share fines in foreign bribery cases with the governments of the countries where the bribery took place, on the logic of “victim compensation.” It is highly likely that a significant chunk of Abacha’s ill-gotten loot consisted of bribe payments that he extorted from American and European companies that wanted to do business in Nigeria – these companies’ payments of those bribes hurt the companies (and their shareholders and employees), compared to how they would have done if they could have gotten the same business without paying bribes. So, why shouldn’t Nigeria be required to use some of the Abacha assets to “compensate” Abacha’s “victims” (that is, firms in countries that were extorted by Abacha) by turning this money over to the firms that paid the bribes, or to the governments of their home countries?

Now, to be clear, I don’t actually support any such compensation payments. The very idea seems slightly ludicrous to me, particularly if framed as an obligation. But, again in the spirit of being provocative (perhaps to the point of being obnoxious or offensive): How are these examples different, in terms of their underlying logic, from the arguments about why the United States should be obligated to turn over FCPA fine recoveries to “victim countries”? Of course, we have a basic and understandable intuition that rich countries should give money to poor countries, and not the other way around. But that instinct is grounded in the logic of altruism and poverty alleviation, not the logic of victim compensation. Indeed, that’s part of what I’m getting at here. For those who want rich countries to give more money to poor countries, that’s fine, make that argument in those terms, and I’ll listen with a sympathetic ear. But I’m not sure it passes muster to dress up that sort of claim as if it’s a legal claim about victim compensation. If you want to go down that road, then you’d better be prepared to explain why the argument doesn’t cut both ways.

]]>https://globalanticorruptionblog.com/2016/06/14/what-might-u-s-officials-think-of-demands-that-the-u-s-transfer-fcpa-settlement-proceeds-to-demand-side-governments-an-imaginary-rant/
Tue, 14 Jun 2016 14:00:58 +0000Matthew Stephensonhttps://globalanticorruptionblog.com/2016/06/14/what-might-u-s-officials-think-of-demands-that-the-u-s-transfer-fcpa-settlement-proceeds-to-demand-side-governments-an-imaginary-rant/As the United States continues to settle Foreign Corrupt Practices Act (FCPA) cases with corporate defendants for large sums, the issue of whether the U.S. and other “supply-side” enforcers should transfer a portion of these settlement proceeds to the countries where the bribery took place has continued to attract attention and discussion. (This question is often framed as whether the U.S. should “return” some of these settlement proceeds to the “victim countries,” that formulation is highly misleading, both because criminal fines were never the property of another government, and so cannot be “returned,” and because in many cases referring to these countries as “victims” is problematic, to put it mildly. So I’ll refer to this as “transferring settlement proceeds to demand-side countries.”) The push for transferring settlement proceeds to demand-side countries has gotten a bit more traction over the past year, and has become something of a talking point for certain demand-side governments, especially those in Africa, along with supporting NGOs. So, for example, a Nigeria-sponsored resolution at last year’s UN Convention Against Corruption Conference of States Parties (Resolution 6/2) called for “urgent attention” to the (utterly bogus and misleading) statistic that although US$6.2 billion has been recovered through settlements in foreign bribery cases, only 3% of this amount “has been returned to States whose officials were bribed and where corrupt transactions took place, which is a key aim of chapter V of the contention,” and further called on states that use settlements to conclude foreign bribery cases to “give due consideration to the involvement of the jurisdictions … where foreign officials were bribed.” (The original proposed language was far stronger, “noting with concern the prevailing narrow interpretation of the terms ‘proceeds of crime’ in settlements … that excludes … fines in order to avoid such proceeds from being returned to States and, by so doing, using settlements to create an artificial category of victims of corruption, thereby reducing the potency of chapter V of the Convention.”) One sees this push in several of the country statements coming out of last month’s London Anticorruption Summit, especially those of Nigeria and Tanzania.

Unsurprisingly, the United States has resisted these calls. Generally, U.S. officials have done so (at least in public) tactfully and diplomatically, emphasizing the U.S. government’s commitment to helping the victims of cooperation, its willingness to work with other countries to cooperate in ongoing investigations and improve the mutual legal assistance process, etc. But I’m beginning to sense a growing undercurrent of frustration on the U.S. side, as an increasing number of demand-side countries and NGOs are making the call for transfer of settlement proceeds to demand-side governments (which, again, they often characterize as “returning assets to victim countries”) a central theme of their presentations and diplomatic efforts. (And perhaps, I should acknowledge, some of the frustration I’m sensing is a reflection of my own skepticism – see here, here, and here.) Now, when I say I sense growing frustration or irritation on the U.S. side, I should be clear that I’m speculating. Though I’ve met a few officials from the U.S. Departments of State and Justice, and Treasury who work on corruption issues, I’m certainly no insider, and nothing in the rest of this post should be interpreted is reflecting any actual conversations or statements from current or former U.S. government officials, because it doesn’t. Nor should this be taken as fully reflecting my own views, even though part of what I’m going to write below is generated by introspection.

With those caveats, I’d like to try to imagine what’s going on in the heads of U.S. government officials as they smile politely while listening to the sorts of criticisms I noted above, and when they express, in measured language, their reservations about the proposals that the U.S. transfer FCPA settlement proceeds to demand-side countries. Just for fun, and to be a bit provocative, I’ll present this as a kind of unhinged rant – the sort of thing I imagine that a hypothetical U.S. official’s id might be screaming internally, behind the polite smiles and diplomatic language imposed by her superego. The imaginary rant, in response to demands that the U.S. transfer FCPA settlement proceeds to demand-side countries, might run something like this:

You greedy, sanctimonious hypocrites.

You have the gall to lecture us about how our FCPA enforcement policy is undermining the goals of UNCAC, and not giving due consideration to corruption’s victims, because we’re not handing over the money that we recover in FCPA cases to the governments whose officials accepted—and usually requested, and often demanded—bribes from firms subject to our jurisdiction? Really? Really? Let’s try to remember some basic facts, shall we? Most of this bribery takes place because you’ve done precious little to address serious corruption in your own countries, especially when your officials—often high-level, well-connected officials—are essentially shaking down foreign corporations for bribes. We go after those corporations, devoting substantial and scarce human talent and time to pursuing those cases, for violations of our law, despite a constant drumbeat of criticism from corporations, the defense bar, and allies in Congress that we’re wasting U.S. government resources and hurting American business. Thanks to the dedication of our hardworking, underpaid, vastly outnumbered prosecutors (who, by the way, are constantly castigated as sell-outs or sleazes when they eventually leave government for private sector work, but that’s another story altogether), we are able to settle these cases and impose fines that are authorized by our legal system for violations of our law. And then you have the temerity to show up with your hands out saying, in effect, “Gimme gimme gimme!” You know what? Here’s an idea: How about enforcing your own damn law! Ideally, you could enforce it against your own government officials—you know, the people who demanded the bloody bribes in the first place!

Or if that’s just too much to ask, then how about you enforce your own anti-bribery laws against the corporations who paid the bribes. You know what? We might even help you out with that one! Maybe we could even cooperate from the outset, and come up with a comprehensive settlement—we actually love to collaborate with foreign jurisdictions, and do so all the time. We’ll just need to be sure that you’re competent to handle these cases and won’t just use the information we provide as a way to help your corrupt public officials cover their tracks. That’s not too much to ask, is it? In fact, you know what? If you actually start enforcing your own domestic anti-bribery laws against these bribe-paying corporations, we’d be more than happy to let you take the lead. We’d really like that! But you know what we don’t like so much? When you continue to sit around doing jack-squat about pervasive shakedowns of foreign companies by your government officials, barely lifting a finger to enforce your domestic anticorruption laws, and then show up and make sanctimonious speeches about how the Big Bad Evil U.S. Government isn’t “returning” assets or “helping victims” because we’re not handing over to your government treasury a percentage of the fines the we collected from corporate defendants for violating our law.

Oh, and speaking of victims, I’m so glad you’re showing such deep concern for the true victims of corruption. You know what our law allows victims to do? If you can show that you’ve been directly and proximately harmed by criminal activity, you can move for an order of compensation under the Crime Victims’ Rights Act and/or the Mandatory Victims Restitution Act. Also, even though the FCPA has no stand-alone private right of action, there may be a variety of mechanisms that victims can use to bring a civil action for damages! Hooray! Wait, what’s that, you say? Nobody in your country can qualify for restitution, or maintain a valid civil suit, because it’s actually very difficult to show a concrete, direct, and proximate injury to any of your citizens from any concrete act of transnational bribery? Rather, the harms are diffuse social harms? Well, guess what? That’s true of most criminal law violations, domestically as well as abroad! The way we address those sorts of harms—and the reason we fine corporations for criminal violations—is through deterrence!

And the great thing about deterrence is that it doesn’t really matter who gets the money. We could demand that defendants pay us cash and then just set it on fire, and the deterrent effect would be the same. That said, even though we’re not trying to maximize revenue (our enforcement agency doesn’t keep the money, after all, and it’s trivial in comparison to our total government budget), it’s really politically helpful in encouraging aggressive enforcement that the fines go to the U.S. Treasury. Do you really want to undermine deterrence by weakening our incentive to enforce the FCPA aggressively, and make our aggressive enforcement posture more politically vulnerable? Does that even matter to you? Or do you just see a big pile of money that you want to get your hands on, plus an opportunity to reclaim the moral high ground when the topic of transnational bribery comes up?

Now, we’ll freely admit, there are a lot of places where the U.S. could do a whole lot better. And you’re perfectly within your rights to hold our feet to the fire to get better cooperation, more timely responses to requests for mutual legal assistance, and more action from Congress and other government departments on issues like financial transparency and corporate secrecy. But when it comes to enforcement of the FCPA, we’re doing so much better than any other country that it’s a bit baffling that this is even on your agenda as something to complain about. How about, instead of showing up with your hands out and saying, “Where’s our cut?”, you take some serious action to get your own house in order first?

Again, no U.S. official would ever say anything like this in public, nor have I ever heard any of them say anything nearly this blunt and sarcastic in private. And though I’m on the record as critical of many of the proposals (and especially the purported legal arguments) for transferring FCPA settlement proceeds to demand-side jurisdictions, the above rant is not an accurate representation of my own views, which I like to think of as more nuanced (though perhaps they’re just more wishy-washy). But I don’t think my imaginary version of a hypothetical U.S. official’s unhinged rant is all that far from what may be going on in the heads of some real people, and I think it might be productive just to get that crude, crass, undiplomatic version of the response out there in the open, for two reasons. First, even if I don’t agree with it 100%, I think there’s quite a bit to it. Second, for those out there who find that views expressed in the rant flawed, objectionable, or perhaps even offensive, I think it might help to put it out there openly as a way of encouraging a direct response, rather than keeping this as unspoken subtext.

]]>https://globalanticorruptionblog.com/2016/04/19/a-detailed-critique-of-the-ngo-call-for-global-standards-for-corporate-settlements-in-foreign-bribery-cases/
Tue, 19 Apr 2016 14:00:29 +0000Matthew Stephensonhttps://globalanticorruptionblog.com/2016/04/19/a-detailed-critique-of-the-ngo-call-for-global-standards-for-corporate-settlements-in-foreign-bribery-cases/In my last couple of posts, I’ve responded to—and criticized—the joint letter that several of my favorite anticorruption NGOs (Corruption Watch, Transparency International, Global Witness, and the UNCAC Coalition) sent to the OECD last month, urging the adoption of “global standards for corporate settlements based on best practice.” My first post took issue with the claim (further developed in a Corruption Watch report) that the current approach (mainly in the U.S.) to corporate settlements in foreign bribery cases was inconsistent with adequate enforcement, while my next post questioned the need for global guidelines. But both of my prior posts could fairly be criticized for (among other things) being too abstract, and for not responding to the specific list of 14 “best practices” identified in the NGOs’ joint letter.

I take that criticism to heart, so in this post—at the risk of overkill on this one letter, but in the hopes of spurring further constructive dialogue on this important topic—I’ll offer a point-by-point reaction to each of the 14 principles listed in the joint letter. Here goes:

“1. Settlements should be one tool in a broader enforcement strategy in which prosecution also plays an important role, and should be executed on a proper legislative basis.”

This is actually two separate principles.

The idea that settlements should only be “one tool,” and that prosecution should also “play[]” an important role, is either obvious or wrong, depending on what exactly what the letter means. If the idea is that enforcement authorities must be willing to prosecute cases—that they shouldn’t just give up if they can’t get a settlement—then the claim is correct but obvious. Unless they were very good bluffers, enforcers wouldn’t get very far in their settlement negotiations if they didn’t retain the credible threat to prosecute if settlement negotiations fell through. But I don’t think that’s what the letter means. I think the idea is that if all (or the vast majority) of foreign anti-bribery cases are resolved through settlements, then something is wrong—the implicit claim is that we should be seeing some cases tried to a verdict. That’s just wrong. What matters, for both deterrence and retribution, is the (expected) penalty for violating the law, not whether that penalty is imposed via trial or settlement. Prosecution (in the sense of litigating a case to judgment) is hugely costly for the government as well as the defendant, and the outcome is highly uncertain. Indeed, if the parties are risk-averse and sufficiently rational (and care mainly about the outcome of the case, rather than producing new law), then all cases should settle, and we should be happy about this. Now, whether the government is settling the cases in the right way, and being sufficiently demanding in its negotiations, is a separate issue, and one where reasonable people can disagree. But the absence of prosecutions is not in and of itself a problem. If Country X settles 100% of its cases, but concludes 10 foreign bribery cases a year with average penalties of $10 million, and Country Y settles two cases per year and prosecutes two cases per year (winning one and losing one), imposing average penalties of $1 million, it’s a bit daft to suggest that Country Y is doing a better job of enforcing its foreign anti-bribery laws than Country X, on any dimension.

The second principle contained in the above-quoted statement, that settlements should have a proper basis in the law, seems fine by me, though insofar as the wording could be read as implying that such settlements require affirmative and specific statutory authorization, I think that’s not quite right, as in some countries, under settled general domestic law, national prosecutorial authorities have the discretion to engage in such settlements.

“2. Settlements should only be used where a company has genuinely self-reported, and cooperated fully.”

I’m certainly in agreement that companies should be punished more harshly when they fail to report wrongdoing, and when they fail to cooperate with an investigation. And so far as I know, every jurisdiction that engages in serious enforcement of anti-bribery laws takes something like this position. But the above statement has two significant flaws.

First, the statement (like much of the discussion in the joint letter and elsewhere) equates settlements with leniency. But that’s not right. One could fully endorse (as I do) the claim that companies that self-disclose and cooperate should be entitled to more leniency. But this does not imply that, for a company that has not self-disclosed (or not cooperated), then the prosecutors should litigate to trial. That would be perverse. It would imply, for example, that the U.S should not try to reach a settlement with Wal-Mart regarding bribes allegedly paid in Mexico, because Wal-Mart did not self-disclose. It would imply that the U.S. and German authorities acted inappropriately in reaching a $1.6 billion settlement with Siemens, because Siemens did not self-disclose. But the advantages of settlement don’t evaporate when the company has been a bad actor. Rather, the relevant penalty scheme (whether statutory or a matter of practice) should impose much weightier sanctions on companies that don’t self-disclose and cooperate, so that the results of settlement negotiations with such companies will be heavier penalties.

Second, the articulated principle says that settlements should be used ONLY were a company has self-reported AND cooperated FULLY. That is, the principle is framed in all-or-nothing terms, rather than as a sliding scale, where greater cooperation results in greater leniency. That may seem attractive, but think for a moment about what it does to firms’ incentives. Suppose a firm, like Siemens or Wal-Mart, fails to self-disclose, but the government begins an investigation anyway. Under the joint letter’s proposed principle, such a firm would have little incentive to cooperate with the investigation, because its failure to self-disclose has already disqualified it from a negotiated settlement. Because subsequent good behavior can’t make up for the original misstep, there’s little incentive to do anything other than fight tooth and nail the rest of the way. (Of course, there might be if the penalty scheme itself offered leniency based on cooperation, which underscores my previous point, but even here the company would have a strong incentive to litigate to final judgment.)

“3. Judicial oversight which includes proper scrutiny of the evidence should be required.”

This is one of the points on which there’s a big difference between US practice—where there’s some nominal judicial oversight but it’s generally pretty minimal, at least in FCPA cases—and the new UK law, which calls for a greater role for the judge. Here, I don’t have particularly strong views, except that—as I stressed in my last post—how we feel about this depends a lot on our relative confidence in prosecutors and judges. I do think there’s a tendency in this area to drastically overestimate the capacity of most judges to evaluate the evidence supporting a settlement. Remember, there’s not a full trial (that’s the whole point), and much of the evidence will be based on disclosures by the corporation and avowals by the prosecutors. The bargaining takes place in the shadow of potential litigation, after all. The one thing that judges should really watch out for is collusion between the prosecutors and the firm; they might also be attentive to abusive behavior by prosecutors with too much leverage. But the idea that a judge should second-guess the settlement based on a cursory review of the evidence, without the benefit of the full panoply of trial procedures, strikes me as problematic. In any event, this seems to me not something that should be elevated to a universal principle, but rather a context-specific decision that might work out differently in different countries.

“4. Settlements should only be used where a company is prepared to admit wrongdoing. Settlements, including their detailed terms, should be submitted to public hearing and should be accessible to the public, as well as the relevant facts admitted, including identification of officials who received the bribes, company employees involved in the wrongdoing, and detailed justification for why a settlement is suitable for the case.”

Again, we’ve got a bunch of separate ideas packed into one item, so let me try to pull them apart and consider them separately:

First, on the idea that settlements (in foreign bribery cases) should be used only where a company is prepared to admit wrongdoing is one that I can basically get behind—I’m also troubled by the SEC’s former practice of allowing companies to settle while neither admitting nor denying wrongdoing—but to the best of my knowledge, this is already a feature of foreign bribery settlements (at least in the US, and every other jurisdiction that currently enforces at all actively).

Second, the idea that the detailed terms of the settlement should be public also makes sense to me (though I suppose that there are some cases where I might make exceptions).

Third, there’s the claim that settlements “should be submitted to public hearing.” I have no idea what this means. If it’s just another way of saying that the terms of the settlement should be public, fine. If it means there should be some sort of quasi-judicial public hearing on the terms of the settlement—perhaps in conjunction with the judicial oversight referenced by the previous item—then this strikes me as a very bad idea. Logistically, this seems like a potential nightmare. Who would be entitled to participate? What would the rules of evidence be? Would there be some ruling on the settlement? And can we please keep in mind that the whole point of a negotiated settlement is to avoid a trial? The incentive that firms have to make certain admissions and to cooperate is the assurance that they can cut a deal with the prosecutors, avoiding both the costs and uncertainties of litigation. The more we make the approval of the settlement like a mini-trial, the more we undermine the process of negotiated settlement, with all its attendant advantages—for the government as well as the defendants.

Fourth, there’s the claim that the settlement document should identify in detail the individuals involved—both the company employees who paid the bribes and the government officials who took the bribes. Here, I’m actually very much in sympathy with the argument. But I do have a concern, noted in another post from a few weeks back, about naming individuals when there are concerns about inaccuracy. (This, I gather from Rick’s comment on that post, is one of the reasons the U.S. government generally abstains from naming un-indicted co-conspirators.) And I suppose there might be special circumstances in which foreign policy or national security considerations militate against full public disclosure of all the individuals involved. But I do think, at least as a default rule, that more detail in the settlement documents about the culpable individuals would be desirable.

Fifth, there’s the call for a detailed justification of why a settlement is suitable. Here again, we see what I think is a cultural anti-settlement bias built into the letter. Why is a negotiated settlement something that requires special justification? It seems to me that, since the rational resolution of most legal disputes is a settlement, if anything the opposite presumption ought to apply: We should hope and expect that the government will settle almost every foreign bribery case, not demand a special explanation for what should be a common practice. I hate to keep repeating myself, but this idea that “prosecution = toughness” and “settlement = weakness” reminds me as nothing so much as the idea that “war = toughness” and “diplomacy = weakness.” The track record of that latter attitude hasn’t been so good, has it?

“5. Settlements should require companies to strengthen and monitor compliance programmes and to report publicly on how they have met the terms of the settlement.”

Yet again, two proposals in one.

On the first, I agree that settlements should encourage companies to strengthen their compliance programs. That’s part of the idea of imposing these heavy fines. But I interpret the recommendation as the claim that every corporate settlement should include either a corporate monitor, or specific government-mandated changes to the firm’s compliance program. I agree that in many cases monitors are appropriate, as are specific changes to firms’ internal programs. But it seems like overkill to insist that these be included in every settlement. In many cases, firms will have a better understanding of how to improve internal compliance, so giving them incentives to do well (by hitting them with penalties if they screw up again) may be a more efficient way to improve genuine compliance than for the government to try to micromanage the internal reforms. Just to be clear, that will sometimes be true, but not always – there are absolutely situations in which the settlement should contain more specific terms and conditions. But there’s no good reason, so far as I know, to mandate this in every case.

On the point that companies should report publicly on how they have met the terms of the settlement—again, it all depends on what exactly this means. If the idea is that companies should be required (by a provision of the settlement) to issue some report, sometime after the conclusion of the settlement or in the settlement document itself, the measures they’ve taken to improve compliance, then I think I could get behind that. But if the idea is that, when a corporate monitor is hired, all the company’s communications with the monitor should be publicly disclosed, I think we start to run into legitimate concerns about how the absence of confidentiality could impede full and frank discussions of internal corporate matters. I’m not necessarily opposed to greater transparency, but there are hard issues here, and nothing in any of the documents cited by the joint letter really addresses those issues in sufficient detail for this to be fairly characterized as a “best practice.”

“6. Settlements should be used to leverage full disclosure of wrongdoing within a company.”

This is largely repetitive with elements of point #4 above, and my responses are similar, so I won’t restate them here.

“7. Prosecution of individuals should be the standard practice and settlements must preclude companies from paying directly or indirectly for fines and legal fees of individuals implicated in the case.”

I don’t want to belabor this point, because I’ve already written about it in previous posts (see especially here). Suffice it to say that prosecution of individuals, while certainly desirable under many circumstances, has its downsides. In any event, I’m not sure what “standard practice” means here.

Sure, no argument here. I’m very sympathetic to the (admittedly unproven) view that current sanctions in foreign bribery cases are too small. But as a statement of “best practices,” this is basically a vacuous restatement of a principle that all OECD Convention signatories have already endorsed, at least on paper.

“9. Settlements should require companies to provide total cooperation with authorities and agencies in other jurisdictions.”

I like the idea, but perhaps we should pause here to recognize—though I know it may not be politic to say it out loud—that not all other jurisdictions are entirely trustworthy. If a U.S. company settles a case of bribery of government officials in a dictatorship like, say, Equatorial Guinea, I’m not so sure the U.S. should insist, in all cases, that that the company should fully cooperate with the enforcement authorities in that country. There’s also the question of who gets to judge whether the company’s subsequent cooperation has been sufficiently “total.” Subject to those important qualifications, I do think it would be a good idea to encourage more international cooperation and comprehensive settlements.

“10. Compensation to victims, based on the full harm caused by the corruption, must be an inherent part of a settlement.”

Sigh–not this again. I’ve written on this before (see here and here), so this is another point I don’t want to belabor. Sometimes, it makes total sense for a settlement to provide for some sort of recompense for victims of corruption in foreign bribery cases. But sometimes it doesn’t—especially where identifying individual victims is extremely hard (because the harms are so diffuse) or where the alleged representatives of the victims (often the “victim country”) is not exactly trustworthy. I’m happy to listen to detailed proposals for how to get better victim compensation in at least some cases—and I’m open to (though a bit skeptical of) proposals like that advanced by Professor Andy Spalding on this blog and elsewhere. But we’re not yet to the point where these mostly untested proposals could be described as international best practice.

“11. Countries and as far as possible all persons who would be affected by the settlement should be notified of the intention to enter into a settlement, given a right to representation at settlement hearings and informed of how to make representations about compensation.”

This seems largely repetitive with aspects of point #4, so I won’t go over my responses again, except to say that I have the increasing sense that nobody involved in drafting the NGO joint letter has ever actually participated in settlement negotiations in foreign bribery cases, or consulted with anybody who has.

“12. Settlements must not preclude further legal actions in other jurisdictions that are not parties to the settlement, subject to applicability of the non bis in idem principle (double jeopardy). Authorities should make all relevant evidence available to their counterparts in other relevant jurisdictions.”

OK, this one baffled me:

First off, a settlement by Country X with Firm Y simply cannot, as a matter of law, preclude legal action by Country Z against Firm Y (unless by operation of Country Z’s own law). So unless someone explains to me otherwise, I’m going to treat the first clause as a banal restatement of the legal status quo.

Then the second clause—about the double jeopardy principle—seems to endorse, without explanation, the controversial idea that settling an anti-bribery enforcement action with one country should preclude subsequent enforcement actions in other countries for the same conduct. (This result is achieve, however, not by the terms settlement agreement, but by the fact of settlement itself.) Not only does this seem to contradict the first clause, but as others have argued on this blog and elsewhere, from the perspective of more rigorous enforcement (including by other jurisdictions, as envisioned by the joint letter’s point #9), international double jeopardy is a bad idea!

As for the bit about making all relevant evidence available to counterparts in other jurisdictions, this is essentially a repeat of point #9, so my response there is relevant here.

“13. Settlements must not be influenced by factors that fall outside the case such as Article 5 considerations, or be used to protect companies from debarment.”

I’ve addressed the debarment concern elsewhere (see especially here) so I won’t repeat myself, except to say that I would have thought that avoiding unnecessary collateral consequences to innocent third parties is generally a good idea, and adequate deterrence can be achieved by other means. I’m not sure what “Article 5 considerations” are (it’s not explained elsewhere in the letter), so I’ll let that one go.

“14. Settlements should not typically be used where a company has had a previous corruption-related enforcement or regulatory action taken against it.”

Though this point is different from the point raised in item #2, my response is generally similar. The letter yet again wrongly conflates settlement with leniency, and neglects the possibility that the posture recommended would give companies that already have one strike against them no incentive to negotiate—they’d be just as well off fighting tooth and nail to the end. The principle should be that the government ought to insist on much harsher terms for repeat offenders, not that the government should refuse to negotiate.

I realize that this has been an absurdly long blog post. But these issues are important, and I’ll confess I’m getting a bit frustrated with how some in the NGO community characterize the role and function of settlements in anti-bribery enforcement, and the lack of careful analysis of incentive effects. There’s too much quasi-jingoistic rhetoric about punishment, and not enough careful analysis of incentives and consequences.

The normalization of relations between the United States and Cuba offers potential lucrative business opportunities for companies that are prepared to meet Cuba’s unique corruption risks. On December 17, 2014, President Barack Obama and Cuban President Raul Castro announced the restoration of full diplomatic relations between the United States and Cuba; an act which President Obama stated was aimed at ending “an outdated approach that for decades has failed to advance our interests” and that would instead begin to “normalize relations between our two countries.” In furtherance of that goal, on January 16, 2015, the U.S. Government eased travel restrictions between the U.S. and Cuba and, perhaps more importantly, reduced certain obstacles that prevented American companies from doing business on the island. For example, U.S. businesses will be allowed to provide financing to Cuban small businesses and sell communications devices, software, and hardware services among other things. Indeed, American companies in the aviation, telecommunications, or financial industries stand to gain a substantial foothold in a burgeoning new – and potentially lucrative – Cuban market.

Before diving in head first, however, American companies must recognize and prepare for the significant Foreign Corrupt Practices Act (“FCPA”) risks inherent in doing business in Cuba. But first, a quick refresher on the FCPA. Generally speaking, the FCPA prohibits bribing foreign officials for the purpose of obtaining or retaining business. The term “foreign official” is broadly defined and includes, among other things: (i) officers or employees of a foreign government or any department, agency, or instrumentality thereof; or (ii) anyone acting in an official capacity for or on behalf of said foreign government or any department, agency, or instrumentality thereof.

Doing business in Cuba presents a host of unique FCPA risks, three of which are particularly worth highlighting. First, while the Cuban government has taken steps to permit its citizens to open small businesses, the vast majority of Cuba’s economy remains government-owned and controlled. Former economist for the International Monetary Fund, Ernesto Hernandez-Cata, estimated that the Cuban government, directly and through state-owned businesses, accounts for more than 75% of Cuba’s total economic activity. Essentially, the state is involved in virtually all of the island’s major businesses, including services typically run by the private sector in the U.S. In other words, American companies will almost certainly deal with foreign officials when doing business in Cuba.

Second, Cuban government officials are notoriously undercompensated. On average, government officials earn between $20 and $40 per month while, in some cases, being tasked with administering Cuba’s multi-million dollar business ventures. Unsurprisingly, low wages and extensive state involvement in business matters have incentivized some Cuban officials to solicit bribes (and, occasionally, have tempted foreign companies to offer them). For example, in September 2014, Cy Tokmakjian, Claudio Vetere, and Marco Puche, executives at Tokmakjian Group, a Concord, Ontario, Canada-based company, were convicted of using bribery and other means to avoid paying taxes. They received sentences of 15, 12, and 8 years respectively as part of President Raul Castro’s crack down on graft and other forms of corruption. Tokmakjian, Vetere, and Puche may not be subject to the FCPA, but similar payments by American companies in Cuba would likely expose the companies and employees to FCPA liability.

Third, and finally, Cuba suffers from a widespread lack of transparency. The 2015 Transparency International Corruption Perceptions Index ranked Cuba 56th out of 168 countries surveyed, tied with Ghana. American companies may find themselves in the dark with respect to Cuban regulations and procurement practices. As a result, companies may not be aware of inconsistent and/or improper application of Cuban regulations. Worse still, American companies may be unaware of the true purposes for certain payments. For example, a company may be informed that a particular payment is required to obtain a specific license but find out that the money was directed to a foreign official.

Note that the FCPA does have a knowledge requirement; however, knowledge may be demonstrated by establishing awareness of a high probability of impropriety, unless the person actually believed that there was nothing improper in that instance. See 15 U.S.C. § 78dd-1(f)(2). The “high probability” standard was intended to ensure that the FCPA’s “knowledge” requirement included instances of “conscious disregard” and “willful blindness.” H.R. Rep. No. 100-576, at 919 (1988) (citing United States v. Bright, 517 F.2d 584 (2d Cir. 1975)); see also United States v. Kozeny, No. 09-cr-4704, 2011 WL 6184494 (2d Cir. Dec. 14, 2011). Furthermore, the vast majority of FCPA cases settle before trial which means that there is little case law that speaks specifically to the FCPA’s scienter requirement. As a result, the DOJ and SEC have broad discretion to attempt to settle cases based on facts that may be out of tune with a strict interpretation of the FCPA’s scienter requirement.

At a minimum, reducing FCPA risks in any foreign country requires that companies take a few basic, but important, steps: conduct a risk assessment of the country, the industry, and the market; use the assessment to prepare a potent anti-bribery policy aimed at both prevention and remediation; implement the policy and disseminate it to all employees; adequately train employees and company agents; and modify the policy when necessary to ensure adequate protection in a changing market.

More specifically, doing business in Cuba – a market with which few American companies are deeply familiar – requires a thorough risk assessment. The quality of the analysis can mean the difference between a deficient anti-bribery policy and one that adequately shields the company from risk exposure. Accordingly, American companies should seek the advice of counsel before, during, and after the assessment. Counsel with experience in dealing with FCPA issues will be well-equipped to make sure the risk analysis is efficient, comprehensive, and targeted. This information will prove invaluable when designing an anti-bribery policy. Furthermore, experienced counsel can assist in implementing the policy, modifying the policy to ensure ongoing effectiveness, and representing the company should any FCPA-related issues arise.

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Tue, 12 Apr 2016 14:00:40 +0000Matthew Stephensonhttps://globalanticorruptionblog.com/2016/04/12/against-global-standards-in-corporate-settlements-in-transnational-anti-bribery-cases/A couple weeks ago, Susan Hawley, the policy director of the UK-based NGO Corruption Watch, published a provocative post on this blog calling for the adoption of “global standards for corporate settlements in foreign bribery cases.” Her post, which drew on a recent Corruption Watch report on the use (and alleged abuse) of the practice of resolving foreign bribery enforcement actions through pre-indictment diversionary settlements—mainly deferred-prosecution and non-prosecution agreements (DPAs/NPAs)—echoed similar arguments advanced in a joint letter sent by Corruption Watch, Transparency International, Global Witness, and the UNCAC Coalition to the OECD, on the occasion of last month’s Ministerial meeting on the OECD Anti-Bribery Convention.

A central concern articulated in Ms. Hawley’s post, as well as the CW report and the joint letter, is the fear that corporate settlements too often let companies off too easily–and let responsible individuals off altogether–thus undermining the deterrent effect of the laws against transnational bribery. I’m sympathetic to the concern about inadequate deterrence, but unconvinced by the suggestion that over-reliance on DPAs/NPAs is the real problem. (Indeed, I tend to think that under-use of these mechanisms in other countries, such as France, is a far greater concern.) My last post took up that set of issues. But, as I noted there, the question whether the U.S. use of settlements is (roughly) appropriate is conceptually distinct from the question whether there ought to be global standards (or guidelines) on the use of such settlements. After all, while one could object to U.S. practices and call for (different) global guidelines—as Corruption Watch does—one could also object to U.S. practices but still resist attempts to develop global guidelines. Or one could not only endorse current U.S. practices, but also call for global guidelines that similarly endorse those practices. And then there’s my position: basically sympathetic to the general U.S. approach to corporate settlements in FCPA cases, and generally skeptical of the case for global guidelines.

Having spent my last post elaborating some of the reasons for my former instinct, let me now say a bit about the reasons I’m unconvinced by the call for global guidelines on corporate settlements (or at least why I think such calls are premature):

First, the right approach to corporate settlements may depend substantially on other aspects of a country’s institutional environment, enforcement capabilities, and legal traditions. Consider, for example, the call in the joint letter for judicial oversight of settlements, “includ[ing] proper scrutiny of the evidence.” It seems to me that the appropriate role for a court in reviewing a settlement may depend on how much confidence we have in prosecutors and courts, respectively, doing the right thing. A significant judicial oversight role may often make things better, but there might also be contexts in which it can make things worse. I’m not sure there’s a one-size-fits-all approach here, and we should be extremely cautious about insisting that all countries give similar responsibilities to their judicial systems. And perhaps it’s also worth noting here that not all countries recognize criminal liability for legal entities, which might reasonably influence certain aspects of settlement practices.

Second, and relatedly, as I noted in my last post, calibrating the proper approach to corporate settlements—deciding how generous or flexible the prosecution ought to be in negotiating a settlement—requires making difficult trade-offs. A more generous government approach to settlement has the obvious downside of reducing punishment (conditional on detection). But it has the advantages of encouraging self-disclosure, and of economizing on enforcement costs. How any given country strikes this balance may depend on factors such as its resources for independently detecting and prosecuting foreign bribery cases. Here again, I’m not so sure that there’s a single right approach, suitable for all countries.

Third, premature adoption of global guidelines might unnecessarily limit diversity and experimentation, which could help generate more evidence as to the pros and cons of different approaches. For example, the UK’s recent adoption of a law allowing DPAs, while generally modeled on the U.S. approach, has a much greater role for judicial oversight. In addition to my previous point about differences in countries’ legal traditions and institutions, it’s arguably a good idea to have the US and UK approaches proceeding in parallel, at least for a while, as this will produce more information about how an active judicial oversight role may affect settlement and enforcement practices. Cutting that off now, by insisting that the UK approach (or the US approach) is the international “best practice” that ought to be enshrined in a set of global guidelines, would impede our ability to learn.

Fourth, pushing for consistency in approaches to settlement, while intended to “level up,” could inadvertently lead to “leveling down.” Suppose, for example, that the joint letter’s concern about country-to-country variation in settlement practices leading to “an uneven playing field” gains traction at the OECD, but that the letter’s calls for things like full transparency of settlements, only providing settlements in cases of full disclosure of all wrongdoing, etc., turn out to be infeasible due to intractable political resistance. Under those circumstances, it’s possible that the (over-)emphasis on the need for consistent global standards could generate precisely the opposite of what organizations like Corruption Watch are hoping for: relatively mild (but internationally consistent!) standards for corporate bribery settlements, which would in turn discourage—or provide an excuse to avoid—more demanding approaches.

Now, to be clear, I do not think that trying to generate a list of aspirational “best practices” is necessarily a bad idea, and it’s possible to read the joint letter (and Ms. Hawley’s post) is simply as something in that spirit. Even though I disagree with some of the specific recommendations, having an open discussion about the proper use of settlements is healthy and productive. What makes me nervous is the rhetoric about the need for “global standards” to address the alleged problem of international inconsistency (and the associated “uneven playing field”). Ultimately, I have yet to be convinced that this is really much of a problem. After all, we’re still in a world where the United States is responsible for the overwhelming majority of enforcement actions against foreign bribery. Most countries, including most OECD signatories, don’t enforce their foreign anti-bribery laws at all, whether through settlements or anything else. So it seems a bit odd to be playing up the need for global standards when what we really need is more serious enforcement by countries other than the United States.